As an underdeveloped e-commerce market, Russia has captured the attention of major e-retailers like Amazon.com Inc. (NASDAQ:AMZN), eBay Inc. (NASDAQ:EBAY) and China’s Alibaba Group Holding Limited, the Wall Street Journal reported Wednesday.
Certain aspects of Russian e-commerce are worth noting for investors, companies and interested spectators.
For instance, luxury goods, children’s clothing and rare or expensive lifestyle items are in high demand, according to e-commerce strategist Michael DeSimone, who runs the e-commerce platform Borderfree.
“Demand is concentrated in the main cities of Moscow and St. Petersburg, but there is growing demand in Russia’s millennial cities [1 million+ people],” he wrote in an email to International Business Times on Wednesday.
Those cities include Novosibirsk (about 1.5 million people) and Yekaterinburg (1.4 million people), according to an earlier presentation DeSimone gave in July. Russia is among Borderfree’s top five markets for its major U.S. retail clients, who pay Borderfree to help them sell products overseas. Russia counts as Borderfree’s best emerging market in sales volume and yearly growth.
But low Internet penetration, of about 50 percent among adults, could be one hurdle. The low penetration might not seem that low, though, considering the large absolute mass Internet users, measured by Borderfree at about 61 million monthly users aged 18 and over.
Another unfamiliarity for non-Russian companies might be the most popular local search engines and social media sites. Yandex, not Google Inc. (NASDAQ:GOOG), is by far the most popular search engine, and the country’s top Internet destination, set as a homepage for more than 40 percent of Russian browsers.
Similarly, key social media channels include Vkontakte and Odnoklassniki, not just the Twitter Inc. (NYSE:TWTR) and Pinterests of the world. One quirky site is shophelp.ru, a forum about shipping and shopping, aimed at "shopaholics."
Besides e-commerce giants like Amazon, smaller e-retailers are hoping to crack the Russian market, where they’ve seen promising revenues already.
California-based fashion e-retailer Modnique will launch its first non-U.S.-tailored website in Russia next week, after more than doubling revenue and site visits from Russia and the Ukraine in its latest quarter.
“We recognized earlier this year that we had a very big opportunity in Russia,” said company CEO Einaras Gravrock to IBTimes on Wednesday. “Traffic and sales from that region started mushrooming very quickly, despite us having no real, specialized supply chain over in Russia, no translations, no local payments.”
“It just blew up for us, so naturally we chose it as our first region,” he continued. Russia will probably account for 10 percent of company sales by year-end, he said.
In late June, Internet market researcher e-marketer pegged Russia’s e-commerce sales at $17.5 billion for 2013, up 21 percent from last year and expanding faster than any other country.
In 2012, Russians spent more than $700 million in cross-border sales, according to Borderfree. Top-selling foreign brands there include Yves Saint Laurent, Jimmy Choo and Prada.
Many Russian consumers are suspicious of credit card and online payments, too. So payment methods are another serious consideration for companies, said DeSimone.
About three-quarters of all sales by Ozon Group, Russia’s answer to Amazon, are paid for with cash, according to the Journal.
“Russians as a population have always been very tech-savvy, but somehow…none of the big foreign companies have really focused on Russia,” said Gravrock, who employs 300 people globally and who has already sent a handful of staffers to Russia.
Gravrock reckons, however, that it could take until 2020 before cash-on-delivery payments become less predominant.