At E-Commerce Firms, Russia Rises; Emerging Web-Sales Sector Lures Global Marketplaces and Retailers

At E-Commerce Firms, Russia Rises

Emerging Web-Sales Sector Lures Global Marketplaces and Retailers

JAMES MARSON

Nov. 12, 2013 5:31 p.m. ET

MOSCOW—Russia has become the next big frontier for global e-commerce companies that for years ignored the country because of payment and delivery issues. EBay Inc., China’s Alibaba Group Holding Ltd. and U.K. fashion retailer ASOS PLC are among those moving in to take advantage of Russia’s increasingly wealthy and Internet-savvy population of some 143 million.Online marketplaces and retailers are looking to largely untapped emerging markets where competition is lighter and growth is faster than developed countries such as the U.S. and Germany. Russia is a focus, given that the country has more than 60 million Internet users, the most in Europe.

“Russia ranks first among emerging markets,” eBay Chief Executive John Donahoe said during a visit here in September.

For years, the e-commerce boom had passed Russia by. In an economy dominated by cash, many Russians don’t have credit cards or are apprehensive about using them online. Buyers complain of waiting weeks for parcels sent from abroad and delivered in Russia by the unreliable postal service.

But the market has mushroomed in recent years, mostly driven by local companies offering cash-on-delivery services. Leading local online retailer Ozon Group, widely known as “Russia’s Amazon, AMZN -1.37% ” had revenue of almost $500 million last year, two-thirds more than in 2011.

Now, global e-commerce companies want a slice of the market, which Morgan StanleyMS -1.10% forecasts will triple to $36 billion in 2015, nearly 5% of all retail sales in Russia. Online sales currently account for less than 2% of the total.

EBay this year launched a Russian-language website with an advertising campaign and received permission from regulators to use its payments service, PayPal. Next year, it will allow Russians to sell as well as buy.

Chinese e-commerce company Alibaba Group launched a Russian-language version of its AliExpress marketplace site early this year.

Amazon.com Inc. has been hiring top managers to develop a digital-content business in Russia, say people familiar with the matter. An Amazon spokesman declined to comment on the company’s plans for Russia.

“It’s a bet on the future,” says eBay Russia Chief Executive Vladimir Dolgov, who expects that one-quarter of eBay’s users will be from emerging markets by 2015. “In the West, there is maturity; here, we are far from that.”

Russia’s e-commerce market is a hodgepodge of mom-and-pop stores and larger companies with countrywide reach. Russian companies control 90% of the market, according to Morgan Stanley.

Electronics and fashion are among the top e-commerce moneymakers here, as in the U.S. and Europe. Deprived of Western styles during Soviet times, Russians snap up designer threads online at discounts compared with expensive stores.

Auto parts also are top seller, as car ownership is rising and websites offer a wider range than expensive repair centers, including less-costly generic parts.

Ozon, founded in 1998 as an online bookstore, now sells things as diverse as food processors and vacations, and last year acquired a leading online footwear store.

As with many other local companies, it overcame concerns over unreliable deliveries and electronic payments by developing its own system of couriers who accept cash payments.

Ozon delivers to customers’ doorsteps or to more than 2,000 pickup points across the country. The couriers’ vehicles don’t carry the company’s logo, says Ozon CEO Maëlle Gavet, because of fears they could be targeted by thieves.

Sometimes couriers do more than hand over goods for cash. Top online fashion retailers Lamoda and KupiVIP.com allow customers to try on their purchases. Some companies even have their couriers offer style advice.

About three-quarters of all Ozon sales are paid for in cash, reducing the risk of fraud, although the use of credit cards is edging up, Ms. Gavet says.

EBay hopes PayPal will help Russians gain more trust in using their credit cards to pay for purchases, as complaints can be more easily resolved and refunded.

“It’s a question of time,” says eBay’s Mr. Dolgov. “For the young generation, cards are normal, but my mom won’t ever pay with a card, even offline.”

Broader ranges and cheaper prices give foreign websites an edge. But slow postal deliveries can leave customers waiting for weeks, unless they choose more expensive courier services.

Yulia Vlokh, a project manager, says she ordered a skin cleaner from the U.S. via eBay at one-third the price she would pay here. She tracked it to the Russian border before it disappeared.

Larisa Krymova, a public-relations manager, ordered a pair of small black shoes via a footwear website, but received a pair of large checked ones. She returned them, and later received a fresh package—again containing checked shoes.

In April, Moscow airports said they had 500 metric tons of unprocessed packages, mostly ordered through Internet sites.

In recognition of the growing scale of the trade, Russia’s Customs Service is considering levying import duties on packages ordered from abroad via the Internet.

Russia’s Communications Ministry, which oversees Russia Post, says the company is undergoing a “serious overhaul” to turn it into a “modern and effective enterprise.”

Sergei Bondarenko, an editor in Moscow, who buys rare soccer shirts via eBay from Europe, says he has seen an improvement. In January, a shirt took two months to arrive; now, he says, he is much happier as deliveries take about 35 days.

“Expectations here are lower but catching up rapidly,” says Ozon’s Ms. Gavet. Consumers in Yekaterinburg, about 1,450 kilometers east of Moscow, used to be satisfied with a delivery time of two weeks. Now, she says, Ozon feels its current speed of three days is perhaps not quick enough.

“Russia is and always will be more difficult because of the size of the country,” she says.