PRESENT

AND

KEY INSIGHTS

These are excerpts from a comprehensive research study offered by East-West Digital News, the international resource on Russian digital industries, in partnership with e-Store Agency.

The research was conducted with the participation of leading consultancies and universities, and based on interviews with over 80 industry executives and experts.

To receive an executive summary at no charge or order the full version (10 chapters, 316 pages), please email us at report@ewdn.com.

East-West Digital News is the first international information company dedicated to Russian digital industries. Its website EWDN.COM provides news, market data, business analysis and updates pertaining to the Internet, e-commerce, mobile and telecom markets, digital TV and satellite systems, software and hardware innovation, as well as to the related investment activity and legal developments.

A consulting branch, East-West Digital Consulting, provides international players with assistance for business development in Russia and advises Russian companies on their international strategies.

For more information, please contact us at contact@ewdn.com

About this study

About the publisher

We are pleased to offer key insights of a year-long research project on the Russian online retail market, one of the fastest growing but least known (and understood) on the planet.

The report provides international audiences with the first reliable and precise data on this market, plus middle and long term forecasts and trends.

Beyond capital-centric analysis, the full version also explores the regional e-commerce scene – now nearing the tipping point in a market thus far dominated by Moscow and St. Petersburg.

Yet our research is, above all, a practical guide. In the full version, more than 150 pages are dedicated to analysis of and recommendations for each of the key issues defining the industry – from marketing to payments, from fulfillment to legal requirements and on to little known HR challenges.

Last but not least, entrepreneurs and investors will enjoy a review by Fast Lane Ventures of the e-commerce-related investment deals that have taken place in Russia over the last two years, with an analysis of the financial issues pertaining to Russian e-commerce and the exit perspectives in the industry. We hope you enjoy this groundbreaking collaborative effort and wish you every success in your e-commerce projects.

Sincerely,

Adrien Henni is the Co-founder and Chief editor of East-West Digital News

Chief Editor’s note Adrien Henni

$7.8bn (230bn rub.)

of which $10.5bn

(310bn rub.)

Online retail accounted

for less than

Total market

size:

of the total Russian retail market… 2%

…but grew by at least in one year +25%

was spent on

physical goods…

of which

(or 125,000 per day)

came from the regions

89 orders of physical goods 45

million  were made during the year (or 245,000 per day)

million  

18 million Russians  

shopped online in a 6-month period,

or 14% of the population 18+ (or 7 million monthly)

25,000 Internet shops up from 16,000 in 2010 or just 268 that same year, according to the Russian official statistics

of which only

made $100m or more in sales (physical goods only) 10

while the revenues of the

or 1/3 of the total market size

$3bn 30 top players totaled less than

(physical goods only)

Insales counted  

Russian E-commerce 2011

THE NUMBERS Sources: Data Insight and East-West Digital News unless stated otherwise

…while cross–border sales

$ 700 m reached  

The market is growing by at least 25% each year; some major online retailers are even seeing their sales double or triple.

1

Russian E-commerce 2012

THE TRENDS Source: East-West Digital News

The regions still lag behind the capitals, but pioneering retailers now generate more than half of their sales from the regions

2

Major offline retailers are now coming to e-commerce while online-offline concepts multiply.

3

Investment activity is growing fast, but exits are still exceptions and are likely to remain so at least in the short term.

4

Logistics and delivery are still bottlenecks for e-commerce in the regions; major retailers overcome this by building their own capacities.

5

Cash-on-delivery is the rule for physical goods and will remain so for a long time, but merchants find ways to cope with the related issues.

6

The lack of qualified human resources appears to be one of the most painful issues, hampering the entire Internet industry.

7

Cross-border sales have grown considerably over the last few years, but foreign e-merchants still have to pull down two major walls: customs clearance and delivery across Russia.

8

Russian E-commerce 2011

INTERNATIONAL COMPARISONS

In 2011, the sales volume of online retail in Russia was similar to that in Italy, Spain or Brazil, while significantly behind the USA and the EU. The share of online retail in total retail amounted to less than 2%, compared to between 7% and 9% in the USA and most West European countries. In the UK, the share has gone beyond 10%. The low penetration of e-commerce in Russia (where in 2011 only around 15% of adult population shopped online) is, however, linked not so much to lack of interest in online retail, but rather with a relatively low Internet penetration.

Relevance of Internet retail in Russia is fairly high, as 40% of Internet users shopped online in 2010, which was ahead of Italy, Greece, and new EU members from Central Europe and the Baltics. The share of online shoppers in total Internet users in Spain that year was comparable to that in Russia, while being 1.5-2 times higher in the most developed countries (65-85%).

The fact that Russia ranks fairly high among European countries in share of online shoppers in total Internet users, does not provide evidence of exhausted growth potential. The mid-term potential of Russia’s online shopper base to expand could be higher than that of European countries.

This optimistic outlook is based on the fact that many characteristics of Internet use in Russia, such as Internet behavior, is less like other European countries and more like what is seen in Asian and Latin American markets, where the Internet audience is significantly more involved in e-commerce than in Europe.

In Europe, only the UK has a share of online shoppers as a percentage of total Internet users that has surpassed the 80% level, whereas the level is well above 80% in such other developed markets as the USA and Japan, and developing ones, such as Brazil and China.

Ru s s i a n E - c o m m e r c e

FORECASTS

We anticipate an at least 2.5-fold market growth between 2010 and 2015. The total e-commerce market could amount to somewhere between 690 bn rubles ($23 bn) and 900 bn rubles ($30 bn) in 2015, at 2010 values. This corresponds to up to 5% of total retail volume in Russia. For reference, the same level of e-commerce existed in the USA in 2008, i.e. Russia is behind approximately 10 years, by this measure.

The fastest growth rate, 3.6-fold or more, is expected to be found in the regions, with a considerable flow of new Internet users from there. They will account for the majority of the growth of the e-commerce market – for 87% in terms of number of new online shoppers and for 59% in terms of market value growth between 2010 and 2015.

In a long term perspective, according to moderate forecasts, the market size of Russian e-commerce could reach $50 bn by 2020. In no case should this figure, which represents around 6% of Russia's total retail market, be regarded as a maximum. Further strong growth will be fueled mainly by such structural factors as: •  Fulfilment infrastructure reaching maturity: With reduced delivery costs, the scope of e- commerce will extend to cheaper product categories; •  E-signature and online payments becoming more popular, with mass demand for non-material products such as insurance and tour package offers.

Russian e-commerce could thus represent a market of up to $150 bn within 15 to 20 years.

P H Y S I C A L G O O D S

S E R V I C E S & V I R T U A L G O O D S

TOP RUSSIAN E - C O M M E R C E P R O P E R T I E S O N L I N E S A L E S 2 0 1 1

An exclusive ranking by East-West Digital News and Data Insight

In the absence of officially disclosed figures for most players, establishing a ranking of the top Russian online retailers is a daunting exercise.

Several rankings do exist, based on a variety of online measurements, information from industry sources and/or other unspecified methodology; none of these can be considered completely reliable.

For certain sites, 2011 sales estimates may vary up to eight-fold between two rankings. In particular, the turnover of Citylink.ru, a major site offering consumer electronics, was estimated at $310 million by Online Retailer – a far cry from Insales' more modest estimate of $37 million. An internal source assured us that Online Retailer's figure was close to reality, but Data Insight's experts remained skeptical. Due to these uncertainties, and in the absence of an official answer from the site, Citylink.ru has not been included – perhaps unfairly – in our ranking.

While KupiVip.ru's turnover "varies" from $77 milllion, according to Insales, to $193 million, according to Online Retailer, a well informed source told us that the site's turnover was actually closer to Insales' estimate.

It is very likely that Amazon and eBay should be included in our ranking, based on the assumption that cross-border sales may have totaled some $600 or $700 million in 2011, and that these two sites account for a significant part of this volume. However, neither site agreed to disclose data on their sales to Russia.

Vseinstrumenti.ru, a site offering tools and appliances for the home and garden, had remained under the radars until recently. Its importance on the Russian e-commerce scene is revealed for the first time in this ranking.

*

Our methodology for estimating turnovers has been the following:

• We systematically requested figures and sometimes obtained them, either officially or unofficially;

•  For some other sites, we received information from reliable insiders or industry sources;

•  In still other cases, we relied on the expertise of Data Insight, whose analysts are among the best on the market;

•  In the absence of official or unofficial figures, reliable sources or an estimate from Data Insight, we averaged the figures from existing rankings – or did not include the site in the ranking when the latter seemed unreliable.

In the absence of official figures, we felt we reached a high degree of certainty whenever at least two reliable industry sources, or experts, converged in their estimates; or when the three main existing rankings offered similar figures.

In other cases, the figures should not be considered more than approximations, with a much lower degree of certainty.

Methodological Note

A research by Fast Lane Ventures in partnership with East-West Digital News V E N T U R E

I N V E S T M E N T IN RUSSIAN E-COMMERCE 2 0 1 0 - 2 0 1 1 PUBLICLY DISCLOSED TRANSACTIONS Unconfirmed data

Official data

A research by Fast Lane Ventures in partnership with East-West Digital News V E N T U R E

I N V E S T M E N T IN RUSSIAN E-COMMERCE 2 0 1 0 - 2 0 1 1 PUBLICLY DISCLOSED TRANSACTIONS Unconfirmed data

Official data

A research by Fast Lane Ventures in partnership with East-West Digital News V E N T U R E

I N V E S T M E N T IN RUSSIAN E-COMMERCE 2 0 1 0 - 2 0 1 1 PUBLICLY DISCLOSED TRANSACTIONS

These are excerpts from "The Russian Internet Deal Book," a comprehensive research on the financing of Russian Internet companies

and startups in 2010 and 2011, conducted by Fast Lane Ventures.

Contents of the full version

Forewords By Ozon CEO Maëlle Gavet, Acrobator founder Bas Godska, and David Waroquier of Mangrove Capital Partners

Key figures and trends

Top 40 Russian e-commerce properties

Part 1. Main market trends

Part 2. Demand side: Online consumers

Part 3. Supply side: Merchants

Part 4. Fulfillment

Part 5. The "Russian payment jungle"

Part 6. Marketing and sales channels

Part 7. Legal aspects

Part 8. HR: The most painful issue?

Part 9. E-commerce in the Samara region: A monograph

Part 10. Serving Russian customers from abroad: From cross-border sales to market entry

Twelve case studies and interviews eBay – KupiVip.ru – The Otto Group – Ozon.ru – Sapato.ru – Shoesofprey.ru – Svyaznoy.ru – Travelmenu.ru – Utinet.ru – Vseinstrumenti.ru – VTB Capital – Daily deal sites

10 CHAPTERS 316 PAGES 1 2 C A S E S T U D I E S & I N T E R V I E W S 9 8 I L L U S T R A T I O N S

Digital Russia in English

Daily news • Analysis International consulting

www.ewdn.com

East-West Digital News is the first international information and consulting company dedicated to Russian digital industries. Get in touch with us at c o n t a c t @ e w d n . c o m

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