Recently, the "Wagner Group Incident" in Russia has once again sparked a global discussion about the security situation in Russia and Ukraine. Since Russia launched the special military operation against Ukraine on February 24, 2022, the Russia-Ukraine conflict has been under close scrutiny and has been ongoing for over 16 months. Facing the "storm", Russia is not only engaged in a duel with Ukraine on the real battlefield, but also striving for autonomy in economic and cultural development under the pressure from the West.
Following the outbreak of the Russia-Ukraine conflict, Western countries led by the United States have continuously imposed sanctions on Russia, covering multiple areas including finance, trade, technology and even culture. EqualOcean observed that, under the intense pressure, new highlights have emerged in Russia's economy and trade. According to TASS, Russia's e-commerce turnover hit a historic high in 2022. Artem Sokolov, chairman of the Association of Internet Trade Companies (AKIT), predicted that Russia's e-commerce turnover might increase by 25-30% in 2023, reaching 63-66 trillion rubles ($71.82-75.24 billion).
In 2023, a year of both opportunities and challenges, how will the Russian e-commerce market perform? What new changes are worth noting in the Russian e-commerce market? Can Chinese companies seize the opportunity to accelerate their entry and expand their influence in the Russian e-commerce market? Starting from the historical origin and considering multiple factors, EqualOcean has analyzed the trends of the Russian e-commerce market in 2023.
Russia's E-commerce Market "Racing" Ahead
From 2010 to the present, Russia's e-commerce market has experienced a remarkable growth period, becoming one of the important e-commerce markets globally. Data from the AKIT shows that the scale of the Russian e-commerce market has grown from 260 billion rubles in 2010 to 49.86 trillion rubles in 2022, with a compound annual growth rate of approximately 27.91%, outperforming the global average of 14.28%.
The continuous digitization of society is one of the key factors driving the growth of Russia's e-commerce market. Over the past decade, the proportion of internet users in Russia has been growing steadily, breaking through 80% for the first time in 2018, and reaching 88% by 2021. It is estimated that about 125 million people in Russia are active internet users. According to Statista data, the number of e-commerce users in Russia also grew from 51.55 million in 2017 to 68.13 million in 2022, and is expected to reach 75.4 million by 2027. At the same time, its e-commerce users are penetrating all age groups. A study by Yandex.Market Analytics showed that the number of e-commerce users in Russia in April increased by 40% compared to January 2020. Among them, the largest increase was in the audience under 17 years old - these users increased by 65%. The second place is between 18 and 24 years old (+62%), and the third place is between 35 and 44 years old (+47%). Among users over 55 years old, their interest in online shopping increased by 32%.
The development of core e-commerce platforms is the main source of market growth. In 2022, the e-commerce revenues of Ozon, Wildberries, and Yandex.Market totaled about 2.21 trillion rubles, accounting for 44.26% of the total market e-commerce scale in the same year. Among them, Wildberries alone accounted for one-third of the market. It officially disclosed that the number of orders in 2022 reached 1.5 billion, an increase of 88% year-on-year; the total value of goods (GMV) reached 16.69 trillion rubles, an increase of 98%. The revenues of Ozon and Yandex in 2022 were 277 billion rubles (an increase of about 55%) and 260.7 billion rubles (an increase of 57%), respectively. Platforms such as Dns shop and Citilink have gradually become the most popular shopping websites in the Russian e-commerce market. From the perspective of cross-border e-commerce, Alibaba is currently the most popular cross-border e-commerce platform. Ecommerce DB data shows that 74% of Russian consumers' last cross-border shopping was done from Alibaba. In addition, according to Data Insight, in 2022, AliExpress Russia's sales were 56.2 billion rubles. Although it was affected by the international situation and decreased by 47%, its market share is close to one-third of Russia's cross-border e-commerce retail sales. In terms of product categories, fashion is the largest market, accounting for 28.1% of Russia's e-commerce revenue. Followed by electronics and media, accounting for 24.0%; food and personal care, accounting for 21.6%; furniture and appliances, accounting for 16.5%; toys, hobbies and DIY, accounting for the remaining 9.8%. However, EqualOcean also learned from industry insiders that there are some operational issues with Russian e-commerce platforms. For example, the platform basically monopolizes logistics, has the right to choose logistics companies, and becomes the middle link between sellers and consumers, resulting in higher communication costs, returns and exchanges, and other after-sales costs for both buyers and sellers.
To date, the Russian e-commerce market has reached growth peaks in 2018 and 2020, with market sizes reaching 1.66 trillion rubles (up 59%) and 3.22 trillion rubles (up 58.5%) respectively. Artem Sokolov, chairman of AKIT, predicts that the retail sales of Russian e-commerce may increase by 25-30% in 2023, reaching 6.3-6.6 trillion rubles. EqualOcean points out that compared to the development experience of China's e-commerce market, the Russian e-commerce market has a lot of room for growth in the future. China's e-commerce retail sales as a proportion of total social retail sales and GDP have reached 31.8% and 11.57% respectively, while these two indicators in Russia are currently only about 11.1% and 3.8%.
In addition, according to data from AKIT, the changes in the proportion of domestic and cross-border e-commerce trade in Russia are also worth noting. Before 2017, the total and proportion of Russia's cross-border trade volume were increasing year by year, once reaching 36%. However, since 2017, this trend has reversed. As of 2022, the "survival space" of Russia's cross-border e-commerce trade volume is only 4%. In the process of rapid growth, the Russian e-commerce market seems to be becoming an independent market.
Russia's E-commerce Market to Grow amidst Changes by 2023
In EqualOcean's opinion, the market will be affected by policies, business environment, changes in supply and demand, technological changes and other factors, which will lead to these major trends:
First, the external environment is changing, and Russia's e-commerce policy is "looking east". In recent years, the global major economies as a whole face the risk of recession, and the Russian-Ukrainian conflict in a stalemate, the European NATO and other international political changes, also added to the development of the Russian economy from the uncertainty of the external world. According to the International Monetary Fund, Russia's economic growth in 2023 will be only 1%, down from 3.5% before 2014. In this context, there are uncertainties in the development of Russia's e-commerce industry, mainly reflected in ruble exchange rate fluctuations, supply chain disruptions, and secondary problems of population outflow.
In the face of external environmental pressures, Russia has focused on securing the independent operation of local e-commerce-related infrastructure on the one hand, and reoriented its foreign economic cooperation to increase cooperation with economies outside the West - China, India, and Middle Eastern countries on the other. Sino-Russian trade has also surged since January 2023, reaching $53.846 billion in the first quarter, up 38.7% year-on-year. In terms of e-commerce policy, the first article of the Joint Statement of the Presidents of the People's Republic of China and the Russian Federation on the Development Plan of the Key Directions of Russian-Chinese Economic Cooperation until 2030, issued by Russia and China in March, states that the two sides will cooperate in "the development of e-commerce and other innovative modes of cooperation". In addition, the Council of the Eurasian Economic Union, which Russia co-founded, approved at its May meeting a draft protocol amending the April 11, 2017 Treaty on Customs Law of the European Economic Union to establish a dedicated e-commerce operator in the field of customs control to provide full logistics for transactions involving the purchase of goods by individuals on online marketplaces.
Secondly, video marketing and social media marketing continue to grow. According to the 2023 Russian Digitalization Report released by DataReportal in February this year, at the beginning of 2023, the Russian Federation had 127.6 million internet users, with an internet penetration rate of 88.2%, and 106 million social media users, accounting for 73.3% of the total population. Compared to 2022, the number of Russian internet users in 2023 has decreased by about 34,000. At the same time, Russian consumers' demand for social and personalized content has increased. Local e-commerce increasingly tends to use live video and social media advertising as marketing tools, and live products of e-commerce platforms and social media have become important sales channels.
However, due to restrictions imposed by large multinational internet companies such as Meta and other special circumstances, Russian users cannot normally use most international social media with business functions, including Instagram and Tiktok. But the most popular local social media in Russia, such as Telegram and VKontakte, are mainly instant messaging software, which do not have powerful business traffic attraction capabilities. In 2023, the functional absence in marketing is being filled. EqualOcean has learned from current sources in Russia that you can now enter the product page by searching for keywords on VKontakte, and Yandex.Market, the largest search engine in Russia, also launched a live streaming feature in the second half of last year, expanding the latest channel for Russian consumers to shop online.
Thirdly, small and medium-sized enterprises (SMEs) are on the rise, driving the blossoming of niche markets. SMEs are becoming important participants in the e-commerce market. According to a survey conducted by Yandex on SMEs, 78% of them are developing their own online stores, about 59% of businesses appear on market platforms, 42% of businesses are stationed on social networks, and 41% of businesses use Messenger as an online channel. This implies two trends: an increasing number of SMEs are moving online, and these SMEs are placing increasing importance on the diversity of channels, with the number of sellers simultaneously stationed on multiple platforms increasing. The diversity of channels allows SMEs to scale more easily and compete with large enterprises for advertising traffic and other marketing resources. Moreover, they are more agile and flexible in terms of pricing, product supply, and service, greatly improving the consumer experience.
The rise of SMEs online is also driving the emergence of new, rapidly growing niche market platforms in the e-commerce market. Ilya Kretov, director of Tinkoff's e-commerce department, said, "Currently, two-thirds of orders are concentrated on top market platforms. In the next few years, these orders will be further dispersed on various specialized websites. Online stores with rich professional knowledge in a certain category will begin to transform into markets." These market platforms are different from top players like Ozon or Wildberries, and are more vertically specialized, catering to more segmented consumer needs. Examples include Farm2Fork, which provides agricultural products directly to consumers, and Russian Wallsoul, which sells paintings to art lovers. Ilya Kretov predicts that "more than 100 such niche sites will appear." Currently, in addition to electronic products, food, household items, and clothing, large appliances, jewelry, furniture, and construction tools are most popular in various product demands. In the future, more and more SMEs can find their target audience in such niche markets.
Fourthly, the second-hand industry is booming. The instability of the Russian and global economic situation has to a certain extent promoted the circulation of second-hand goods in the Russian e-commerce market. After the Russo-Ukrainian conflict, the United States, the European Union, and Japan imposed restrictions on the export of high-tech products to Russia, and many foreign manufacturers including Apple, Samsung, LG, and Dell stopped supplying products to Russia. The withdrawal of foreign manufacturers from the Russian market led to a 2.5-fold increase in the number of second-hand goods advertisements. EqualOcean observed that Russian Internet companies have launched sections for second-hand goods trading. Ozon has launched an online classified service for second-hand goods for individuals, allowing users to sell or give away their goods on the site for free; MTS has started trading second-hand and discounted smartphones, with a month-on-month growth of over 30%; Svyaznoy, Megafon, and Citylink have also established a repurchase and resale business for second-hand smartphones.
On the other hand, in the context of consumer downgrade, a trend of conscious consumption has arisen in Russia, and the demand for second-hand products has significantly increased. According to SimilarWeb data, the most popular e-commerce and shopping site in Russia, Avito.ru, is a globally renowned classified advertising site based in Moscow. It can meet various daily needs of consumers, from buying and selling goods and cars to finding jobs and services, and renting houses. This platform is now widely used for buying second-hand goods or reassigning goods, giving second-hand goods a new life, to the extent that a new profession has arisen in Russia - Avitolog: people who make money through Avito.
Amidst changes, "China" is becoming a keyword in the development of the Russian e-commerce market. The head of a foreign trade company based in Changsha, mainly exporting construction tools to Russian B-end customers, told EqualOcean that during the pandemic, orders from Russia increased rather than decreased compared to Europe and America, and the factory was overwhelmed with orders. Following the conflict between Russia and Ukraine and the withdrawal of Western brands, Chinese manufacturers with supply chain advantages are expected to seize a golden opportunity. They are likely to gradually achieve "local brand development" by "filling market gaps". Huang Xiao, President of Ozon China, predicts that from 2023 to 2030, Sino-Russian cross-border e-commerce business will have the opportunity to develop rapidly. In the future, more Chinese brands will enter the Russian market, starting from online channels, and then developing through all channels, both online and offline. By then, the recognition and market share of Chinese brands will further increase, and the Russian market's understanding of Chinese products will also deepen.
In order to better help companies understand the Russian e-commerce market, EqualOcean plans to release the "2023 Russian E-commerce Market Research Report". The report is currently open for external cooperation. Interested friends can scan the QR code below the article to get in touch with us. Let's go to the overseas market together and understand the Russian e-commerce market.
