The E-Commerce Route into Russia

The biggest country in both Europe and Asia, Russia is recovering following a sharp recession induced by the Covid-19 pandemic last year, giving Hong Kong-based exporters attractive opportunities.

The global pandemic shrank Russia’s GDP by 3% last year, stunting its spending power, but at the same time social-distancing restrictions fast-tracked consumers’ move into online shopping.

Online shopping in Russia jumped 59% to 3.2 trillion rubles (US$44 billion), HKTDC Economist Jenny Lam told a webinar on e-commerce opportunities for Hong Kong exporters.

Demand for e-commerce product categories closely matches the leading sectors of Hong Kong exporters – the top five categories are electronics and electrical appliances, clothing and footwear, food products, furniture and household goods, and beauty and health.

Shift online

Along with consumer patterns worldwide, young people are more inclined to shop online, Ms Lam said. They enjoy watching films, playing games and reading books online. Consumer electronics imports for Russia rose 12% last year despite the pandemic as users bought high-end gaming hardware and related accessories such as cameras and projectors. In the first quarter of this year, household electronics sales jumped 18% to €850 million (US$1 billion).

Sports and outdoor activities are very popular in Russia, she said, with the sports and related equipment flourishing, while sport reports, recordings, broadcasts and streaming, through such services as the Sportrecs site, also draw many readers and viewers.

With 146 million people living in a continent-sized country, distribution always poses a challenge for fulfillment in Russia. This goes without saying that Russia’s e-commerce market remains largely underpenetrated and fragmented with a penetration rate less than 10% and the top 3 domestic players accounting for less than one-quarter of the total e-commerce sales in 2020. 

Leading Export

Ms Lam said Russia is a leading oil exporter and the price of crude remains a key driver of the country’s economic performance, despite the many years of effort that have gone into diversifying the economy away from its reliance on the fossil fuel industry. The global price of crude has recovered since its nadir in April last year, when New York Mercantile Exchange oil futures prices sank to negative on worries storage space could run out. Prices have since recovered, however, and GDP is expected to grow 2.9% this year. The national Covid-19 vaccination campaign featuring three home-grown vaccines including the Sputnik V shots, boosted by various incentives, such as the chocolate popsicles offered by the country’s most iconic department store GUM, has also substantially reduced the case count.

Timur Khamitov, Head of Ozon Global, a leading multi-category e-commerce provider in Russia, told the webinar that the cross-border online market had great potential. 

Business volume for Ozon had risen to more than 11 million stock keeping units and over 73.9 million customer orders per year in 2020, he noted.

As Covid kept shoppers at home, the company’s gross merchandise volume (GMV) grew 147% year-on-year in the final quarter of 2020.

Ozon’s current strategy is to increase customer base and loyalty, attract more suppliers and expand its logistics footprint, largely by providing for last mile delivery and shoring up its network of pick-up points throughout the country. At the same time, it is also looking to diversify its platform, while incorporating a wider range of fintech innovations. 

Global Launch 

Mr Khamitov said suppliers can manage logistics, adding their own warehouse and shipping. There is no value-added tax on online sales in Russia. Inventory stays inside the sellers’ country and does not move until sold.

Ozon generated revenue through commission, ranging from 2% to 13%, he said. Russia does not impose import taxes on goods valued at less than €200 (US$245) per parcel or weighing less than 31 kilograms. There is no limit on the number of qualifying parcels from a source.

Olga Kuznetsova, Business Development Manager at Ozon Global, said the firm has a special support department for businesses from China, noting the close commercial ties between China and Russia. She said Russian consumers trusted Hong Kong as a source of electronics.