The slow growth rate of purchasing power and the economy will slow down the growth of the Russian e-commerce market. The average purchasing power of Russian consumers is relatively low, and the value of a single purchase from an online store has been decreasing for three years.
However, in the next few years, the growth rate of the Russian e-commerce market will be higher than the average growth rate of the Western e-commerce markets. According to various forecasts, the average annual growth in 2020─2024 will be up to 12–33%. The growth in the number of digital shoppers and especially the increased number of purchases will have an effect on the growth of e-commerce in the coming years. Remote work and studying becoming more common, which is being spurred by the coronavirus pandemic, will support this development.
Logistics is still a bottleneck in the development of e-commerce
The smoothness of e-commerce deliveries has been a major challenge for the development of the market. The delivery of purchases has sometimes taken weeks, and the purchases may have arrived damaged or been lost on the way. It’s no wonder that Russian consumers have been distrustful of online shopping.
“There have been lots of scammers on the market, and, in general, the level of service has not always been good. This is why Russian consumers don’t like to pay for their purchases before they have been delivered. However, these attitudes are slowly starting to change,” says Jaana Kurjenoja, the Chief Economist of the Finnish Commerce Federation.
The poor quality of logistics services has forced online stores to arrange deliveries and warehousing themselves. Half the parcels are already being delivered to customers through the online stores’ and market platforms’ own channels. Various pickup points have been set up throughout the country, which lets online retailers also serve residents of smaller towns and ensures cheap deliveries and easier returns.
The coronavirus has sped up the change of payment methods by creating a desire to avoid handling cash and cards during delivery. For example, wildberries.ru, the biggest Russian platform specialised in fashion, now only delivers pre-paid purchases.
Reviews by peers are important to Russian consumers
Compared to Nordic consumers, Russian consumers are often more interested in buying new goods, and the price matters a lot to them. They are also very brand-conscious, even though – probably because of the level of purchasing power – their willingness to buy luxury brand products is not as great as that of, for example, the Swedes.
“Russian consumers are different from Nordic consumers in many ways. If you are used to selling and marketing to Nordic online shoppers, the same methods may not work with Russian shoppers,” says Kurjenoja.
The websites of marketplaces and online stores are important to Russian consumers as sources of shopping ideas and information. Reviews by peers and the experiences of acquaintances have a significantly larger role on a Russian consumer’s path to purchase than on that of, for example, a Swedish consumer. Advertisements, on the other hand, do not do much to trigger impulses to buy for Russian consumers, while they are very important for creating impulses to buy in Sweden.
China is taking over markets, but there are also other challengers
In the early 2010s, Western online stores were still popular among the middle class in Russia. In the aftermath of the financial crisis and economic sanctions, many Western brands and online stores left the Russian market in 2014−2016, leaving the domestic and Chinese companies to compete among themselves.
“As the purchasing power and the ruble weakened, the importance of cheap prices grew, and Chinese retailers in particular – led by AliExpress – knew how to compete with prices. Market giants like Alibaba could invest in both logistics and payment methods while also competing with prices,” says Kurjenoja.
The fast growth and development of the Russian e-commerce market has made foreign, including Western, online retailers interested in the market again. Turkish online stores in particular are seeking to enter the Russian consumer market.
Despite its development, the Russian e-commerce market is not an easy playing field. However, the market is close to Finland and is growing rapidly.
“The easiest way to take the first step into the Russian e-commerce market is through a Russian market platform – especially if the platform provides its own logistics and payment systems. It would be a good idea for Finnish online stores entering the international market to also consider this option,” says Kurjenoja.
For further information, please contact: Jaana Kurjenoja, Chief Economist, Finnish Commerce Federation, jaana.kurjenoja(at)kauppa.fi, tel. +358 (0)40 820 5378
The Finnish Commerce Federation represents commerce – the largest sector of economic life. Commerce employs around 300,000 people in Finland. The Federation has around 7,000 member companies and represents both retail and wholesale commerce in industrial policy and labour market lobbying.