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Online sales in Russia are expected to swell to $38 billion by 2018, and Russia ranked fifth worldwide in e-commerce growth last year, according to international market research firm yStats.com. Big players with deep pockets are taking note.

If e-commerce industry observers ever wonder why major online retail players like eBay Inc. and Rocket Internet AG  are taking the risk of investing heavily in the tough-to-navigate, emerging e-commerce market of Russia, the answer is: the possibility of a big reward. They want to get in on the ground floor of what has the potential to be a massive e-commerce market.

While the country’s current political climate may dampen the economy, and online sales with it, a look at recent figures from international market research firm yStats.com illustrates the potential in the region if political instability eases.

Russia ranked fifth worldwide in e-commerce growth by country last year and yStats.com  forecasts it will surpass South Korea to become the ninth-largest B2C e-ecommerce market worldwide in terms of sales this year. Online sales in Russia grew 19% in 2013 and are expected to reach $38 billion by 2018, yStats says. The country’s e-commerce sales growth was surpassed only by China (79%), Indonesia (71%), Mexico (42%), and India (35%). In Europe, Russia’s B2C e-commerce market was the fourth largest by sales in 2013, yStats says.

Additionally, Russia ranked fifth worldwide among countries in terms of growth of Internet users between 2008 and 2013, with a 100% increase over the period. Russia also is first among what’s commonly called the BRIC countries (Brazil, Russia, India and China) in both online spending per shopper and Internet penetration.

Consumer electronics and appliance retailer Ulmart ranks first among the 30 Russian retailers in the Europe 500 with 2013 web sales of $1 billion, up 26% from $794 million a year earlier. Ulmart was followed by apparel and accessories retailer Wildberries, with 2013 web sales of $531 million, up 18% from $450 million a year earlier.

In terms of foreign online marketplaces that operate in Russia, Alibaba Group Holding Ltd.’s Aliexpress.com led in number of unique Russian visitors, yStats says, followed by eBay.com and Amazon.com.

Investors are taking note of Russia’s online sales potential, the yStats report notes. For example, Russian online retailers Lamoda (No. 139 in the Europe 500), KupiVIP (No.119) and Sapato (owned by Ozon, No.89) all received large investments in the past three years. Ozon received $100 million in funding from a group of investors including Japan e-commerce company Rakuten. And, LaModa has racked up $205 million in funds since its launch in 2011. 59% of total Russian investment deals in 2013 were in Internet-related companies, yStats says, a large percentage, but down from 68% in 2012.

When it comes to e-commerce trends, yStats says in recent years more online retailers have begun selling children’s goods in Russia. These include Mamagazin, Esky and Babadu. Other developments include more cross-border shopping, with 10% of online shoppers in Russia now shopping online at retail web sites based outside their home country. And, while cash on delivery continues to dominate in Russia, payment by credit or debit card is rising, yStats says.

While the country poses significant barriers to really ramping up web sales, such as lacking well-established and reliable national parcel carriers and the consumer preference of cash on delivery, e-commerce players such as Lamoda, one of several Russian companies owned by Germany-based e-commerce powerhouse Rocket Internet, and eBay deem the investments worth the time and money.

Rocket has created its own fulfillment service, Lamoda Express, for deliveries in the country. It’s not the first to do so. For example, Russia’s Ozon, which fancies itself the Amazon of Russia, has launched O-Courier, a delivery service in Russia that also fulfills orders on behalf of other retailers in the country.

EBay has also focused heavily on Russia in the past few years. It’s rumored to be opening an online marketplace for Russian merchants. EBay last year launched a fully localized, Russian-language marketplace with goods from merchants based outside of Russia. Russians cannot sell on the site; they can only buy. Russian online shoppers type in eBay.com or eBay.ru to access the site, which lists inventory from sellers in such countries as the United States and United Kingdom who ship to Russia. Russian users can search in Cyrillic or English.

EBay helps U.S. merchants reach faraway shoppers through its Global Shipping Program, which lets shoppers in about 60 countries, including China and Russia, buy from eBay sellers on eBay.com. U.S. sellers ship the goods to a warehouse in Kentucky, where eBay takes care of getting parcels to the foreign shopper.

To help launch the Russian site, eBay in 2012 moved to build a local team in the country. That group is led by Vladimir Dolgov, general manager of eBay Marketplaces for the Russian Federation. Dolgov was formerly country director for Google Russia. Before Google, Dolgov was CEO of Ozon. That team has been busy working on the Russian site and also on Russian mobile offerings. EBay launched a Russian fashion app in 2012 called eBay Moda. The app for Apple Inc.’s iPhone is one of the most downloaded lifestyle apps in the Russian iTunes store, eBay says.

A look at data available on Top500Guide.com, however, show significant differences in how online consumers in Russia shop online compared with their European peers. Data suggest they don’t spend as much or convert as often. For example, in terms of apparel, at Germany’s top online apparel retailer Zalando, No. 9 in the Europe 500, the average ticket is $221.02 and its conversion rate is 3.2%. Meanwhile, Lamoda’s average ticket is less than half that at an Internet Retailer-estimated $101.04, and its estimated conversion rate is 1.9%.

Find out more:   https://www.internetretailer.com/2014/10/09/russia-massive-frontier-e-commerce-potential

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