The recent Online Retail Russia event in Moscow (16/17 April 2015) confirmed that, for UK retailers seeking cross-border trading opportunities, Russia presents an attractive option despite its economic and political troubles. For traders able to take a long-term strategic view, now may be an ideal time to enter the Russian market and make the most of Russians’ continuing love affair with British luxury and fashion goods, while competition is weak and costs are low.
IMRG’s chairman and founder James Roper is a regular participant at Online Retail Russia and was this year joined by David Williams, director of online, EMEA at www.deckers.com.
David said: "It’s clear that while there is still economic instability in the market, the eCommerce infrastructure and agencies, logistics and consumer interest is increasing, and if one is bold, there are opportunities to make inroads in the market during the current climate. It’s clear that Russians still love western brands and there is still an appetite for them, and eCommerce, if done well and locally, is an ideal way to drive sales in this fascinating and potentially huge market.”
A time of crisis
Russia is currently experiencing its third economic crisis in recent years. Russia’s trade turnover with the outside world plunged 30.1% year-on-year in the first two months of 2015 as oil price falls, currency devaluation and sanctions shook the Russian economy. Total imports plummeted $25.7bn, a fall of 37.6% compared to the same period last year, while exports plunged 23.8% to $57.6bn, according to data published by the Rosstat state statistics agency. Trade between Russia and the European Union fell by 34.3% to $38.2bn, with Britain among the hardest hit – its trade shrinking 51.9%.
Yet despite all this, here are seven reasons why the Russian online market may be an attractive option for UK retailers.
Russia is a large and rapidly growing eCommerce market – there are already more than 150,000 online shops in Russia, and 35,000 new stores are coming online each year.
Russia has a population of 143.5 million people and 73 million active internet users, half of whom currently buy online spending £13bn annually. Today only 3% of shopping is online, but this is forecast to at least triple by the end of 2020 with cross-border expected to reach 60% of the total volume of online sales. Russians all use one language – and are located right next to the EU border.
Russians are still buying 2.5 million new cars every year, whereas the whole of Europe buys 12.5 million. They eat, shop for clothes, use make-up, decorate homes and buy smartphones to make calls and surf the web. Consumer habits and behaviors are changing – Russians compare prices, search for best offers and look for deals. They are learning to buy smarter – to be able to buy more – and they still love expensive brands.
Google (31% market share) and Yandex (60%) are the primary Russian search engines and both use similar search algorithms. They have PPC and CPA platforms, RTB and retargeting tools, local and global marketplaces and social media – all the tools you are used to in the UK.
Local Russian talent just got cheaper. Localisation, SEO, PPC management and web development services are available and are of the same quality you are used to, but at half the price. Costs are lower for you – but not for your Russian competitors.
Local Russian manufacturing capacities are modest. Russians are already consuming products that have been produced abroad – consumer electronics, apparel, cosmetics, sports equipment to name just a few. Inevitably with the drop of the ruble, the products local retailers are selling are getting more expensive – fully in line with your offer and that of other foreign sellers.
Russians want your goods. In January 2015 there were 11,521 Yandex search requests for Fred Perry, 3,664 for Paul Smith, 1,551 for Vivienne Westwood and 2,444 for Mulberry. Some brands are turbocharged with marketing campaigns, while some are just air-breathers – but opportunities abound.
Local Russian competition is struggling. Sales volumes and margins are falling, advertising volumes are dropping and it is becoming increasingly difficult for Russian brands to afford advertising, new product launches or other investments. PPC and SEO prices have dropped even in ruble value as competition weakens. If Russia is appealing to you as a long-term prospect, there has never been a better or cheaper time to test the Russian waters.
Russia is a sleeping giant, and getting an early toehold now may prove determining for future success.
Article By James Roper, Chairman and Founder of IMRG