Analysis of E-commerce industry as a part of digital economy of Russia
Published in Leadership and Soft Skills.
13-14th of October 2022 in Moscow Center of International Trade the biggest e-commerce conference took place. Conference “Electronic trade 2022” united online shops, producers, sellers and retail under one roof. Topic of the event was “Big Remake”. Between 18th and 20th of May 2022 26th Russian Internet Forum took place. What was discussed at these conferences and how does Russian e-commerce look in 2022?
Before discussing the e-commerce market as it is now, we should understand the way the industry developed.
In 2019, the Government of Russian Federation created a national project “Digital economy”. One of its goals was to help Russian e-commerce to become one of the best 10 on the planet by 2024.
As a result of Covid-19 pandemic, the e-commerce industry received one of the biggest impulses for growth since market formation. By the end of 2021 one quarter of Russians said that they buy the most everyday goods online. This metric has doubled since 2019 .
In the last 2 years online has finally become part of ordinary life. According to Mediascope, by 2021 every Russian citizen under the age of 45 will use the Internet at least once a month. 84% of the Russian population use online services. At the same time, the number of online purchases grows fast.
In 2021, out of 9,5 trillion rubles generated by the Ru-Net economy more than 90% is represented by e-commerce. This segment has grew by 44% since 2020 . The e-commerce segment includes online retail, online sales of travel services, online sales of services, the electronic payment services market and the C2C online commerce market. E-commerce occupies a central place in the digital economy of the Russian Federation and determines the future fate of the industry.
It is around the e-commerce market that the modern digital contour of the Runet economy is built: sellers and marketplaces invest in IT infrastructure and communications, buy digital content and advertising, supporting the growth of the entire digital economy.
According to ACIT, the share of e-commerce in trade in the Russian Federation in 2021 was 9.2%. In Moscow e-commerce penetration was 19.9%. At the same time, according to Mediascope, 37% of online sales and 62% of orders come from the largest marketplaces.
According to Rosstat, in August the volume of online sales via the Internet for large and medium-sized trading organizations increased by 3.4% in one month, and by 1.3 times compared to August last year. The share of online sales in total retail turnover increased to 8.5% in August from 6.8% in August 2021 . According to Artem Sokolov, president of the Association of Internet Trade Companies (AKIT), from January to August inclusive, Russians made purchases on the Internet in the amount of 3.1 trillion rubles, which is 39% more than in the same period last year .
Government support measures for the IT industry have a positive effect on the e-commerce market. Companies that place and promote advertisements for the purchase of goods, works, services, property rights, job offers, services for searching for such offers and advertisements, providing access to them or concluding contracts, may be included in the register of accredited IT companies. Well-known marketplaces, portals such as hh.ru, Superjob and Avito fall under this definition. Registered companies enjoy many tax benefits, simplified procedures for hiring foreigners and are exempt from scheduled inspections.
The widespread use of the Internet in the Russian Federation provides the e-commerce segment with a potential market of 94 million daily users. Of these, 30% regularly shop online and only 18% have never shopped online.
To compete in the domestic market, sellers go to the regions and adapt to mobile traffic, in which Google is traditionally strong.
The more competitive the Russian market is, the more interested online stores are in exporting. There are quite a large number of buyers in the markets of the near abroad (Belarus, countries of Caucasus and Central Asia) and there is a demand for goods from Russia. At the same time, the domestic markets of these countries are just beginning to develop, there is a good chance to occupy a free niche.
As a result, online export of goods in 2021 amounted to 110 billion rubles. The share of neighboring countries is 58% . In 2021, the increase in export shipments delivered by Boxberry to neighboring countries amounted to more than 400% (compared to 2020 data). Most parcels are sent to Belarus and Kazakhstan: in these countries, you can immediately reach significant sales volumes. There is practically no competition in Kyrgyzstan and Armenia. These countries are members of the EAEU – a free trade zone, so the goods are not subject to duties, and the procedure for processing parcels is the same as in Russia.
Wildberries recorded an increase in export turnover in January-October 2020 by 89% year-on-year to 17.1 billion rubles, and in pieces – by 124%. About 40% of export sales based on the results of the reporting goods were Russian-made goods. In January-October, the export turnover of Russian-made goods grew by 99% yoy to 6.4 billion rubles, and sales in units – by 154% YOY. Currently, 17,000 entrepreneurs export Russian goods through Wildberries, and their number has almost tripled in a year .
E-commerce can also export IT products: for example, taxi services Maxim, headquartered in Kurgan, operates in Georgia, Tajikistan, Iran, Indonesia, Argentina and other countries, selling to franchisees a single mobile application. Revenue in 2018, according to the founder of the company Belonogov, amounted to 5 billion rubles, net profit – 1.5 billion rubles .
At the same time, companies from China are actively trading on the Russian market – the Russian AliExpress claims a 10% e-commerce market share . Despite the fact that 58.5% of the company is owned by Russian businessmen, the goods come from the parent structure, which is traded on the New York Stock Exchange. The departure of Chinese companies due to sanctions could cause great damage to the industry.
After February 23, imports of consumer goods to the Russian Federation decreased by 56% . Many imported goods, such as electronics, were sold primarily via the Internet. The reduction in demand and supply of imported goods had a negative impact on the industry.
The development of delivery-as-a-services, using the latest algorithms and technologies to optimize delivery (for example, for food delivery, the number of couriers and total mileage) makes logistics cheaper and more accessible for SMEs. The development of day-to-day delivery from 11% to 19% in 3 years allows increasing online sales of the fresh category .
eGrocery (purchase of everyday goods via the Internet) is a driver for the development of urgent delivery. In the first half of 2021, 97 million orders were delivered from eGrocery stores. This market continues to grow rapidly. Online sales of the five largest players – Samokat, VkusVill, Yandex.Lavka, Sbermarket and Delivery Club – occupy more than two thirds of the market.
Introducing comments and ratings into online stores helps make online sales more transparent and reliable. At the same time, the moderation of such content imposes additional costs that are unbearable for SMEs, which gives an additional advantage to marketplaces .
Advertising and sales go hand in hand. The fall in the advertising market has a negative impact on the entire digital economy, and e-commerce is no exception. After the restriction of foreign advertising platforms (Google, Youtube, Meta, Tiktok, Criteo), Russian advertisers were forced to switch to domestic platforms. But there are problems with the transition. Prices for placement in domestic networks increased significantly, which led to a decrease in the effectiveness of advertising. Many companies have cut advertising budgets. According to the RAEC forecast, the fall in the online advertising segment by the end of 2022 will be 50% .
Conclusion: Russian e-commerce is growing rapidly and is replacing traditional retail. Nevertheless, the growth potential of new buyers is still great, but its realization requires both the efforts of market players and the solution of a number of economic and legislative problems.
Nakonechnyy Pavel Aleksandrovich
Student of Moscow Polytech University
Borodacheva Lubov Viktorovna
Professor at Moscow Polytech University
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