Ewdn cross-border summary

E-Commerce in Russia
E-COMMERCE IN RUSSIA
What brands, entrepreneurs and investors need to know
What international merchants, service providers and entrepreneurs
to succeed in one of the world’s hottest markets
must know to succeed in one of the world’s hottest markets
PART 2 – CROSS-BORDER SALES
EEXECUTIVE SUMMARY – SEPTEMBER 2014
I N P A R T N E R S H I P W I T H
The National Mail
Ordering Association
Merchant Risk
Council
W I T H T H E S U P P O R T O F

About this study
This short, ad-funded version contains excerpts from a comprehensive research
study created by East-West Digital News, the international resource for Russia’s
digital industries, in partnership with e-commercefacts.com.
The research was conducted in cooperation with leading consultants and
universities, and based on interviews with over 50 industry players and experts.
To order a copy of the full version (8 chapters, 150 pages – see table of contents
at the end of this document) please email us at report@ewdn.com.
About the publisher
East-West Digital News is the first international information company dedicated
to Russian digital industries. Its website EWDN.COM provides news, market
data, business analysis and updates pertaining to the Internet, e-commerce,
mobile and telecom industries, digital TV and satellite systems, software and
hardware innovation, as well as to related investment activity and legal
developments.
A consulting branch, East-West Digital Consulting, provides international players
with business development assistance in Russia and advises Russian
companies on their international strategies.
For more information, please contact us at contact@ewdn.com
Advertising, sponsorship
and distribution opportunities
To inquire about advertising and sponsorship opportunities, or if your would like
to get involved in the distribution of this study, please contact us at
ads@ewdn.com.
2
CROSS-BORDER SALES TO RUSSIA

Chief editor’s note
Far from the international turmoil, the Russian e-commerce market is still
growing – and many players across the globe continue serving an ever increasing
number of online shoppers from this country.
But this very young market is also one of the least known and understood in
today’s globalized e-commerce industry, due to the language barrier as well as to a
lack of information and data.
For the first time, this research project, which began in 2013, sheds full light on the
cross-border sales market. It is based on exchanges with more than 50 market
players and experts and includes a set of reliable data.
Much credit for this breakthrough is due to Russia’s National Mail Ordering
Association (NAMO) and its president Alexander Ivanov, who have patiently
collected information from the Russian Post and key market players – be it officially
or from insider sources.
Yet this document is, above all, a practical guide. In the full version, more than
100 pages are dedicated to analysis of, and recommendations for, each of the key
operational hurdles confronting international online retailers willing to sell to
Russian customers – from shipment, to customs clearance, to cross-border
marketing and payments, to legal requirements.
Finally, our special gratitude goes to the sponsors and advertisers behind this
study, who provided us with the support necessary for a pioneering, in-depth
investigation.
We hope you enjoy this groundbreaking collaborative effort and wish you every
success in your e-commerce projects.
Adrien Henni is co-founder and chief editor of East-West Digital News
3

Participating organizations
ONLINE RETAILERS
SERVICE PROVIDERS
RESEARCH PARTNERS
! !
National Association of
Mail Order and Distance
Selling (NAMO)
MEDIA PARTNERS
Merchant Risk
Council
4

Table of contents
of this free summary
Key numbers 6
Executive summary 8
1. The Russian Internet market 9
1.1. Internet penetration 9
1.2. Regional contrasts 11
1.3. Russian audience world-wide 11
2. The domestic online retail market 12
2.1. Market size 13
2.2. Market growth forecasts 13
2.3. Number of users; user profiles and behavior 15
2.4. International comparisons 16
3. Cross-border sales 18
3.1. Market figures and trends 19
3.2. Why Russians buy abroad 21
3.3. What Russian consumers like – and fear 23
3.3. Customs clearance and shipment issues 23
3.4. From cross-border sales to market entry 24
Interviews & Analysis 25
Alex Vasiliev of SPSR: “Even a sharp increase in taxes would not be
a problem if at the same time procedures are being simplified” 26
Alibaba PM Guzel Galeeva: Why we launched a social network
for Russian cross-border shoppers 30
Merchant Risk Council: “Russian consumers are not all fraudsters” 31
Case studies 35
eBay: Cross-border leader sees Russia as priority market but feels
threatened by troubled international relations 36
Shoes of Prey: Tailor-made Australian shoes for stylish Russians 40
About the full version 45
Key industry events 50
Download the free summaries of EWDN’s report on Russian e-commerce
PART 1: The domestic e-commerce market: http://www.ewdn.com/e-commerce/summary-part1.pdf
PART 2: Cross-border sales: http://www.ewdn.com/e-commerce/summary-part2.pdf
5

CROSS-BORDER SALES 2013
KEY NUMBERS
(PHYSICAL GOODS ONLY)
Source: East-West Digital News unless stated otherwise
Approximately
$3bn
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
10 million
Russians shopped in
foreign online stores
With
and
capturing the lion’s
share of the market
+75%
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
Total
market
size:
About
generating 38 million parcels
$2bn
UP from 2012
in number
of parcels
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $
$ $ $ $ $ $ $ $
$ $ $ $ $ $ $ $
Average
order
value
$400
(for repeat
purchases)
Aliexpress
$180 $160 $ 105 $40 $24
eBay
Clothing
Electronics
Rutaobao.ru
Dostami.ru (BayRu)
Source: NAMO
Sources:
Dostami, HSE,
NAMO
S o u r c e : NAMO
6
Key numbers

CROSS-BORDER
SALES TO RUSSIA
E X E C U T I V E
S U M M A R Y
To receive the full version of EWDN’s report on cross-border
sales to Russia (8 chapters, 150 pages) or inquire
about other EWDN reports, please contact us at:
report@ewdn.com
8

1. The Russian Internet market
1.1. Internet penetration
In the spring of 2014, 61% of the adult population, or 71 million people, were connected on
a monthly basis, according to the Public Opinion Foundation (FOM). Of them, 58 million
people – 50% of the adult population – used the Internet daily.
The Internet became popular in Russia much later than in advanced European countries,
with a mere 10% of the adult population connected in 2003 and just 20% in 2007.
Today, Russia still lags behind most other European countries in terms of penetration, with
roughly half of the adult population connected. Russia is catching up quickly however, with
average annual growth in Internet users exceeding 10% over the last few years. In
September 2011, Russia overtook Germany as the market with the largest number of
unique Internet users in Europe.
If growth continues at its current rate, it will take Russia less than a decade to reach the
current levels of Europe's most connected countries.
60%
50%
40%
30%
20%
10%
0%
Spring
2003
Internet penetration rate in Russia (2003-2013)
Spring
2004
Spring
2005
Spring
2006
Spring
2007
Spring
2008
Spring
2009
Spring
2010
Spring
2011
Spring
2012
Spring
2013
Daily users Weekly users Monthly users
Source: Public Opinion Foundation (FOM)
Executive Summary
9

Executive Summary
28%
19.3 M
11%
7.6 M
19%
13.3 M
15%
10 M
9%
6.3 M
14%
9.3 M
4%
3 M
South
North-West
Volga
Urals
Siberia
Far East
Source: FOM
Distribution of Internet users by federal district
(winter 2013-14)
Center
incl.
Moscow
Nationwide – 100% (68.7 million unique users)
International comparison: Internet user engagement across Europe
(average hours per visitor 15+, April 2014)
39
37
36
33
European average: 23h
Source: comScore MMX
28
26
24
23
22
18
17
17
16
16
16
15
13
12
Turkey
Russia
Netherlands
UK
France
Spain
Italy
Poland
Finland
Norway
Germany
Portugal
Sweden
Belgium
Ireland
Denmark
Austria
Switzerland
10

Executive Summary
1.2. Regional contrasts
Internet penetration in Russia is still uneven. There is a nearly two-fold difference in the
percentage of monthly Internet users between the capitals, Moscow and St. Petersburg,
which have over 75% Internet penetration, compared to 45% in Dagestan and 42% in
Mordovia, according to a FOM report from February 2013. The average penetration across
Russia was 58%. Among the key factors driving these regional contrasts are differences in
the standard of living, purchasing power and development of broadband and wireless
Internet access, as well as computer and Internet literacy.
As of Summer 2013, just 11% of Russian Internet users lived in Moscow, 4% in St.
Petersburg and 9% in cities with more than 1 million inhabitants, while 20% lived in rural
areas. Almost three quarters of all Russian Internet users live in the European part of Russia.
1.3. Russian audience world-wide
The Russian-speaking internet audience numbers in the range of 90 million users, including
an approximate 20 million Russian speaking users in the former Soviet republics, Western
Europe, Israel and North America.
A D V E R T I S E M E N T
11

Executive Summary
2. The domestic online retail market
2.1. Market size
In 2013, according to Data Insight, the Russian online retail market neared ($16.5 billion),
up 28% from the previous year. This volume includes online sales of both physical and
digital goods, as well as ticket sales (airline, train and entertainment tickets) – but not hotel
bookings ($2 billion), sales to corporations ($3 million), and cross-border sales of physical
goods (approximately $3 billion).
Thus in total the Russian online retail market reached about ($25 billion). On a yearly
basis, in 2013, 30 million Russians bought physical goods online.
Turnover by segment in Russian domestic online retail
Source: InSales
(2013, in billion rubles)
Segments
2013 Growth/2012
Household appliances & electronics 107 34%
Clothing, footwear 76 34%
Computer, notebooks, computer parts 56 23%
Car parts 26 43%
Mobile phones 26 32%
Children’s goods 24 29%
Home items 22 97%
Furniture 20 36%
B2B equipment 19 55%
Construction materials 15 40%
Sports, tourism, leisure 14 42%
Groceries 13 -1%
Office appliances 12 30%
Cosmetics, perfumes 9 31%
Accessories 7 37%
Books 6 3%
Gifts 5 50%
Medicine 3,5 63%
Pet goods 3 95%
Flowers 3 31%
12

2.2. Market growth forecasts
We anticipate that, in 2015, Russia’s domestic online retail market will amount to at least
$27 billion in turnover (domestic sales of physical and digital goods, including tickets but not
hotel bookings, B2B sales and coupons). The fastest growth rate is expected to be found in
the regions.
According to moderate forecasts, Russia’s online retail market could reach $50-70 billion by
2020. In no case should this figure, which represents around 7% of Russia's total retail
market, be regarded as a maximum. In the long term, strong growth will be fueled mainly by
such structural factors as:
• E-signature and online payments becoming more popular: mass demand for
non- material products such as insurance and tour package offers.
• Fulfillment infrastructure reaching maturity: With reduced delivery costs the
scope of e-commerce will extend to cheaper product categories and be made
available even to small cities and remote areas.
Russian e-commerce could thus represent a market of up to $150 billion within 10 to 15
years.
Russian domestic e-commerce market
growth forecast
2010:
$8bn
2013:
$16.5bn
2020:
$50bn to
$70bn
Long term:
> $100bn
Executive Summary
Domestic sales of physical and digital goods, including tickets but not hotel bookings,
B2B sales and coupons – Source: EWDN
13

Executive Summary
2.3. Number of users; user profiles and behavior
Online shopping has already become a common method of consumption for active Russian
Internet users, particularly those with upper middle and high income levels living in Moscow,
St. Petersburg and large Russian cities. This is why online shopping penetration in Russia,
which is still weak compared to some Western European countries, is expected to
eventually catch up with the most connected countries like the UK, where up to 85% of
Internet users are involved in online shopping.
According to Data Insight, the Russian online retail market could well involve 44 million
shoppers in 2015 (doubling from 2012) and tens of millions more by the end of the decade.1
Significant differences regarding online purchasing can be observed between different
population groups. For example, men tend to spend more online than women; they more
actively purchase car parts, mobile phones and computers, while women are more likely to
purchase from such categories as clothing and children’s goods. Generally speaking,
people from younger age groups, with middle to upper class salaries, who have completed
higher education, tend to consume more online than those from the opposite groups.
1. Three groups drive this growth in the number of online shoppers: individuals in the regions, especially in small
towns, individuals with low incomes and individuals newly connected to the Internet.
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source for news and information on the
Russian Digital Advertising Market
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+41 041 248 08 60
europesales@yandex-team.ru
RUSSIAN
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ussales@yandex-team.ru
15

Executive Summary
According to various surveys, online shoppers most appreciate lower prices, easier
comparisons and convenient delivery. Variations can occur depending on socio-geographic
criteria. For example, more so than others, inhabitants of the capitals and the largest cities
appreciate the time saving aspect of online shopping and the higher service level offered by
online retailers, when it comes to delivery questions.
Symmetrically, users are very sensitive to price and product information on the website,
while pricing and delivery conditions are common causes of dissatisfaction. Trust is a key
issue, with at least 30% of Russian Internet users declaring they never shop online versus
10% to 20% in most Western countries.
2.4. International comparisons
In 2012, the sales volume of online retail in Russia was similar to that of Brazil, while
significantly behind the USA and Western Europe. The share of online retail to total retail
amounted to approximately 2%, compared to between 5% and 10% in the USA and most
West European countries. In the UK, this share reaches 13%.
Research by PwC in 2012 found that only 43% of Russian Internet users made frequent
purchases online, meaning one or more purchases per month, compared to the
international average of 60%.
Nevertheless, the low penetration of e-commerce in Russia is primarily due to the relatively
low level of Internet penetration. If judging by the number of Internet users shopping online,
the share of online retail sales in Russia is more or less comparable with the situation in
Italy, Greece and the new EU members from Central Europe and the Baltic states.
Online retail in Russia and other markets in 2013
(physical and virtual goods, not including games, in billion USD)
Market size
Yearly growth
Estimates of Data Insight (Russia), eMarketer (other countries)
16

Executive Summary
3. Cross-border sales
Foreign retailers’ online sales of physical goods to Russia have grown considerably over
the last few years and reached an estimated $3 billion in 2013. Russian consumers
appreciate foreign retailers’ diversified assortment and enjoy the virtually tax-free
purchases.
Although this market remains opaque, the following picture has emerged from our one-year
inquiry:
• International giants eBay and Amazon, as well as a number of Western fashion
brands in the clothing segment, enjoy high trust and popularity among Russian
customers, but Chinese retailers are currently gaining an even stronger traction,
although in different product categories.
• Apparel and accessories, consumer electronics and gadgets, as well as
automobile parts are the most in demand product categories.
• Besides common localization, marketing, and customer service issues, foreign e-merchants
run into three key difficulties: customs clearance, delivery to the
consumer, and payment process.
18

Executive Summary
3.1. Market figures and trends
With 38 million parcels delivered in 2013 (up from 22 million in 2012, according to the
NAMO association), the market is developing fast and challenging the country’s transport
and customs infrastructure. In the spring of 2013, Moscow airports were congested with up
to 500 tons of parcels backed up at customs check points. A few months later, the Federal
Customs Service pledged to add hundreds of new employees to help deal with the growing
influx of parcels. In 2014, the Russian and the Chinese postal operators expanded their
partnership to enhance deliveries.
Average order value: Russian and foreign e-merchants compared (Q3 2013)
Source: Higher School of Economics
Average order value from some significant cross-border retailers (2013)
Dostami.ru
(ex-BayRu) Rutaobao eBay Aliexpress
> $400 $160 ~$40 $24
Estimated Russian cross-border sales volume (2012-2016)
$19bn
Source: EWDN
Clothing:
Russian online
stores
Clothing:
Foreign online
stores
Electronics:
Russian online
stores
Electronics:
Foreign online
stores
$115 $105 $455 $180
Sources: NAMO (Rutaobao, eBay, Aliexpress), Dostami.ru
19
$2.5bn
$4.2bn
$6.5bn
$8bn
$11.5bn
$6bn
$3bn
$1.7bn

Russian audience for AliExpress and eBay (Sept. 2013 – Aug. 2014)
AliExpress and eBay audience share by income (August 2014)1
13% 17%
54%
55%
33% 28%
45,001-60,000 rubles
15,001-45,000 rubles
5,000-15,000 rubles
Executive Summary
20
CHART
2-1
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
Source: Gemius
CHART
2-2
At 2014 average exchange rate: 5,000-15,000 rubles = $141-$423;
15,001-45,000 rubles = $423-$1,271; 45,001-60,000 rubles = $1,271-$1,695
The full version of this study includes a full set of data on the Russian audience of five top cross-border
sites over the past two years, in partnership with research company Gemius.

Executive Summary
Market growth benefits major international online retailers – first of all, Alibaba’s subsidiary
Aliexpress and eBay – as well as many sites selling small quantities in niche segments.
Some of them report their sales volume and order size from Russian customers are
significantly larger than with any other country.
However, since late 2013, some Western online stores have seen sales to Russia grow
more slowly – or even stagnate or decrease in specific cases – while sales from China
reached ever higher levels.1
3.2. Why Russians buy abroad
Even taking into account delivery costs, many products are still cheaper if bought abroad
than on the domestic market. Price differences may be even more considerable with some
rare items.2
One reason for the price advantage in some categories is that parcels received by
inhabitants of the Customs Union (including Russia) are not subject to customs taxation if
they do not exceed 31 kg in weight and 1,000 euros in value per month, for each recipient.3
Reasons for shopping in Russian vs. foreign online stores (2013)
Clothing:
Favor Russian
online stores
However, foreign Internet stores do not always have a price advantage over Russian ones,
and often the advantage will not carry across all products the retailer offers. In the
electronics segment foreign online stores, especially in China and Germany, offer more
favorable prices for cameras, but have no clear price advantage for smartphones. Russian
online stores show a wide range of prices for clothing and footwear and foreign stores are
located within this price range.
1. In July 2014, AliExpress became Russia’s most visited e-commerce platform and one of the country’s top 10
most visited website. http://www.ewdn.com/2014/09/09/chinas-aliexpress-breaches-russias-rankings/
2. A bolo tie aficionado interviewed by EWDN says there can be ten-fold price difference between a local
Russian shop and a foreign online retailer.
3. If weight or value do exceed these numbers, customs duty amounts to 30% of the value of the part in excess,
with a minimum tax fare of 4 euros per kg. Russian authorities are expected to switch to a less liberal customs
regime before the end of 2014.
21
Clothing:
Favor foreign
online stores
Electronics:
Favor Russian
online stores
Electronics:
Favor foreign
online stores
• Faster delivery
(49.2%)
• Ease of returns and
exchanges (21.7%)
• Less risk of
package loss (23%).
• Can purchase
products not available
in Russia (63.3%)
• Price differences
(46.6%)
• Wider assortment
(39.3%)
• Higher quality
products (35.8%).
• Faster delivery
(54.8%)
• Ease of returns and
exchanges (28.1%)
• Less risk of package
loss (27.8%)
• Product guarantees
(27.8%)
• Can purchase
products not available
in Russia (61.4%)
• Price differences
(48.5%)
Source: Higher School of Economics

Executive Summary
Additionally, a number of products are simply not available, or are hard to find, on the
domestic market. This concerns not only obscure collectables, but other items such as a
number of spare automobile parts and accessories, which when related to rare or little
known car brands are virtually nonexistent in Russia, especially in the regions. BayRu has
built its assortment of car parts by identifying the products that were most lacking on
existing Russian online resources and offline shops.
3.3. What Russian consumers like – and fear
Russian consumers have unique qualities that often necessitate specific merchandizing
strategies to attract purchases. A website marketing template that successfully caters to
Western audiences would not be as effective if simply transferred to the Russian
marketplace. Local consumers require more guarantees and conviction in display content
pre-purchase. Among their fears and expectations are the following:
• Russian consumers are more distrustful of retailers and fearful of artificially
high pricing. They must be certain a product is worth paying for, whether this is
based on quality, warranty, brand recognition etc..
• Unlike Western consumers, Russians are anxious in regards to international
delivery and fearful of unscrupulous suppliers. High visibility and display of
postage conditions is vital. For example, retailer Net-a-porter.com has a permanent
banner and link across all its Russian-version site pages stating “Express delivery
to Russia,” while the UK’s Next retail store assures customers of “quick and
reliable” delivery on its homepage.
• Russians love promotional offers and activities, especially those linked to their
cultural and social habits. Frequent and catchy promotions and discounts are
important to sustaining local consumer loyalty. However, Russian consumers also
respond better to clearly stated links or “buttons”, which describe the promo in
detail. For example, in May 2014 ASOS.com focused on the traditional May
holidays in Russia with an offer on its Russian-version site that touched on the
“dacha” (second home in the countryside). The promo read “20% sales + free
express-delivery with promo code Dacha20”.
3.4. Customs clearance and shipment issues
Occasional slowdowns at customs checkpoints and the slow service of the Russian Post
create serious obstacles. However, a new generation of Russian and international delivery
providers and cross-border operators are emerging, thus offering more choices to
international players. Meanwhile, the Russian Post is progressively enhancing its capacities
while the customs service is introducing simplified and faster procedures.
23

Executive Summary
3.5. From cross-border sales to market entry
Some foreigners assume that they can start selling significant volumes to Russian
consumers by simply extending their existing businesses. This is possible, as shown by the
experience of eBay, Aliexpress, Amazon, Asos and a number of other e-merchants.
However, cross-border sales in large volumes are possible only if the foreign e-store or
brand is perceived by local consumers as having significant and distinctive advantages (in
terms of price and product assortment in particular) and adapted to the specifics of the
Russian market and the expectations of local consumers.
At a certain stage, a stronger local presence – or full market entry – may be required to tap
the Russian market’s true potential. On the domestic e-commerce scene, four foreign
companies – or Russian companies with foreign shareholders and management – are
among the top 10 players (Otto Group, Ozon, Lamoda and KupiVIP). These cases show
that foreign retailers can succeed on the local market at a significant scale when relying on
a strong local team and taking into account local specificities – including, in certain cases,
the development of their own local fulfillment capacities.
24

CROSS-BORDER
SALES TO RUSSIA
I N T E R V I E W S
& A N A L Y S I S
report@ewdn.com
25

Interview | Alex Vasiliev (SPSR)
Alex Vasiliev of SPSR on cross-border sales:
“Even a sharp increase in taxes would not be
a problem if at the same time procedures are
being simplified”
Responsible for the international activities and business development of Russian delivery
service company SPSR, 32-year-old Alex Vasiliev personifies Russia’s new generation of
internationally-oriented retail and logistics professionals. Before joining SPSR in 2011, he
served Turkish companies operating in Russia in the bank card and logistics industries.
In this interview with East-West Digital News, Vasiliev describes SPSR’s thriving e-commerce
shipment business and shares his views on market prospects in the field of cross-border
sales.
– To begin with, please briefly introduce SPSR
SPSR Express is the leading privately-owned Russian express delivery company, with more
than 13 years of experience in the Russian market. It is second only to the Russian Post in
terms of coverage, delivering to more than 6,000 cities, towns and villages across the country.
We are the only express delivery company in Russia operating exclusively through its own
network – which ensures better security and control over delivery routes. With more than
3,900 employees, there are no third parties involved in our operations.
– What about your e-commerce cross-border shipment business?
When we launched this activity in 2012, practically all cross-border shipments were handled
by the Russian Post and its subsidiary EMS, leaving alternative providers – at the time mostly
international companies – a negligible share of this market. However, there was growing
demand for services superior to that of the Post. [Editor’s note: Mr Vasiliev is hinting at the
slow and unreliable service of the national postal operator when it deals with e-commerce
parcels.]
On our side, we had strong assets – including customs expertise and a customs broker’s
license – to launch such a business. This is how we became the first Russian alternative
provider serving large foreign online retailers.
We are still a pioneer on the market. We were the first to introduce an electronic customs
declaration system two years ago. Today, Russian customs officials have introduced such
forms largely inspired by us. It even became a template for some of our partners, like
wnDirect, who used it as a model for other countries.
26

Our international operations are managed and developed by a dedicated team of 30
professionals. The company’s couriers, meanwhile, operate with no distinction between
domestic and international shipments.
– Do you offer any services besides shipment itself?
Sure. We have introduced a cash-on-delivery service for foreign retailers – once again
pioneering the market. Returns may jump from less than 1% to 7-8% – but sales can double.
We also position ourselves as a solution provider with a consulting offer for payment or
marketing issues. Thus we have introduced some of our clients to Qiwi Wallet, and to banks
for joint marketing actions, etc.
– How does the cross-border shipment business look in terms of volume?
The Russian Post still accounts for more than 90% of e-commerce shipments to Russia. For
the remaining fraction, SPSR has established itself as a key alternative provider and the clear
leader among Russian companies.
In 2013, we handled about one million parcels, and expect that figure to double this year.
Existing clients account for one half of this growth, while new clients account for the other. To
date we serve more than 200 foreign online retailers – compared with 300 Russian e-merchants
for domestic operations.
We’re especially strong in the UK market with a near monopoly there. It was the first market
where we landed important companies like ASOS and Next as our key clients.
Now the UK accounts for approximately 40% of our activity. Another 40% is generated by US
clients and 20% by other countries. We’re developing actively in Germany, France and Italy.
We are more cautious about the Chinese market, where dubious practices with customs
declarations are still widespread, not to mention the potential quality and legal issues with
some of the products coming from there.
If we take the market in general – putting aside SPSR’s activity – the split is a bit different. We
estimate that US e-merchants account for about 40% of cross-border sales to Russia, with
Chinese companies representing another 40%. At most 8% comes from the UK.
– To what extent could the more restrictive customs rules – with the threshold of tax-free
shipments lowered – affect cross-border e-commerce?
It is hard to predict, as the new rules have not yet been adopted. However, since 76% of our
parcels have a value of less than 150 euros, it seems that a significant portion of cross-border
shipments will remain unaffected.
Even a sharp increase in taxes would not be a problem if at the same time processes and
procedures are being simplified. This is why we support and trust the state’s efforts to make
cross-border sales transparent and simple. The introduction of electronic forms was an
important step, and we believe the general trend is positive.
27

One of the remaining difficulties lies in the fact that national postal services and alternative
operators are subject to different customs rules and processes – and it is not always easy for
online retailers to navigate between them. For example when we started working with ASOS
they had to introduce specific standards for Russia, which was rather unusual for them.
– How does your offer compete with the Russian Post, on the one hand, and with an
international shipment company like DHL, for example, on the other?
Our standard delivery time for shipments from the UK ranges from five to seven days, versus
about 2-3 weeks via the postal service. In terms of tariffs, we are about twice as expensive as
the Post for parcels larger than 2kg– with an even bigger premium for small packages.
However, we are going to launch a budget offer called “Deferred Solution”, which will be much
closer to the Post’s rates.
In terms of delivery time, our offer for cross-border B2C shipments is more or less
comparable to what DHL Express offers to global Internet stores selling on the Russian
market. Regarding rates, we are significantly more affordable.
– Some international shipment providers are very selective when delivering to Russia
and certain other countries. Does SPSR have any selection criteria when working with
online retailers?
We prefer to work on an exclusive basis via partners like WN Direct in the UK or Borderfree in
the US, who handle the first-mile operations, even though we still maintain direct contracts
with online retailers as well.
We welcome collaboration with everyone under two conditions: transparent processes and a
rigorous approach to business.
– Do you believe that cross-border e-commerce could suffer from the current
international turmoil?
I don’t think there’s any direct impact. Over the last few months people have actually bought
more than we forecast. A potential concern, however, is the ruble’s fall [editor’s note: by up to
25% in one year]. This could affect demand, though we haven’t noticed any consequences
yet.
(May 2014)
28

Interview | Guzel Galeeva (Alibabab.com)
Alibaba project manager Guzel Galeeva:
Why we launched a social network for
Russian cross-border shoppers
In May 2014, China’s Alibaba Group launched the iTao project for Russian e-shoppers. The
service is a mixture of social networks Pinterest and Instagram, with users able to share
photos of their purchases and discuss them. CPU talked with representatives of service in
Russia and learned about future plans iTao. In an interview given to Russian tech publication
Siliconrus.com, project manager Guzel Galeeva explains the present strategy and future
direction of the project.1
– What is the vision of the project, aside from its likeness to Pinterest and Instagram?
iTao is a social network for shopaholics, in the best sense of the word. It is a platform where
people can share photograps of goods purchased in various online stores, especially from
foreign retailers. Not everyone is ready to purchase something online, especially from
overseas. On iTao users share successful and unsuccessful shopping experiences, post
product information (size, quality, and so on), as well as share tips with each other.
1. http://siliconrus.com/2014/07/itao/
30

– How do you plan to develop the platform further?
The future for the site is to create an innovative network of live communications using a
mature network of buyers across online stores worldwide. Visitors will have the opportunity to
subscribe to their favorite authors, by products by photos, discuss the intricacies of buying
abroad and even resell goods that did not fit. Furthermore, friends will be able to organize
interest groups, as well as improve the photographing skills of end-users.
– What are some of the key benefits that make you think the project will take off on the
Russian market?
The main one is maintaining communication through our mobile application, which we will
begin to market and launch in August 2014. The most important advantage though is the
huge user base of Alibaba Group.
– Do you have any competitors on the market?
There are no direct competitors on the Russian Internet. Of course, in terms of content
someone might can compare iTao with Pin.me, while Kakao Talk is similar to us in the field of
mobile apps. Perhaps, smaller sites that mimic the idea of our site are opening up regularly
too. We did not want to take the path of banal imitation, but to deliver to the demands of
Russian-speaking users. We noticed that they are already using social networks to publish
their "khvastov" (Russian variation on the phrase "bragging rights") and exchange
information, and decided to give them a more convenient platform to do so.
– What are your goals for the end of 2014?
We are very modest and at the end of the year we want to attract one million visitors a day to
this new platform.
(May 2014)
Interview | Guzel Galeeva (Alibabab.com)
31

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Expert analysis | S. Manduro and N. Vedrenne:
Russian consumers are not all fraudsters
By Steven Mandurano, Global Lead Marketing Communications & PR,
and Nicolas Vedrenne, Managing Director, Merchant Risk Council
Europe
Russian consumers are known to be unique in their purchasing patterns, especially online.
Considering that Russian payments and fraud processes are geared specifically towards the
Russian consumer, there are many risks that an outsider must understand.
Many Russian consumers prefer the usage of localized payments, such as making an online
payment in-person at a local cash-in kiosk, or through cash-on-delivery (COD) options. The
Russian market is full of exuberance and Russian consumers are willing to spend. However,
the Russian people, on a whole, are skeptical of Western companies and extremely private
with their online credentials. These actions present e-commerce professionals with a number
of issues when dealing with fraudulent behavior.
“The Russian market is full of endless possibility. However, the main priority for any non-
Russian company looking to penetrate the market is the ability to localize,” said Nicolas
Vedrenne, MRC Managing Director of Europe. “Do not go at it alone; be sure to have an ally
who is already established within the Russian market. They will be able to introduce you to
the right connections and show you the ins and outs of Russian commerce,” he adds.
In the USA or the majority of European countries, it is easy to call a customer and ask if
certain purchases were made; solving many suspicious acts right there on the spot. However,
do not attempt to contact a Russian consumer, especially if the person in the call center does
not speak the language, to ask for any credentials on purchases made online. Russian fraud
trends, although similar to those appearing within Europe and the Americas, need a little more
attention.
Although Russia saw a 35% increase in fraud attacks in 2012 from 2011, according to FICO,
the fraud pressure rate is not listed as specifically higher than in other key markets. Card risks
are limited for the merchant as 3DS is the accepted norm and expectation for online shoppers
in Russia. Fraud issues have previously emerged where a customer’s credentials have
conflicting information.
No matter where in the world a company stands, there will always be payment refusals. In
spite of widespread opinon, the Russian market is not that different than any other market
when it comes to the card payments main indicators (risk, decline rate etc.).
Foreign merchants testing the Russian market should turn on 3DSecure, which will give them
a liability shift. The abandon rate with 3DSecure is 10%. This is significant, but not the highest
compared with some other countries.
1. In France for example, cross border transactions suffer a high decline rate: when French card issuing banks
see a cross-border transaction, they prefer to decline it.
33

Expert analysis | S. Manduro and N. Vedrenne:
After the initial test period, some merchants switch 3DSecure off. “We used to have 3DS on
for all Russian payments but when we turned this off we experienced an increase in the
success rate (approved transactions divided by total attempts) of about 10%, which for us is
quite significant,” commented an MRC merchant. “Also, Russian transactions have an above-average
success rate for us and perform well overall (with a global acquiring option). We
have very high success rates on initial payments. However, recurring payment success rates
can be significantly lower in comparison.”2
With its events and publications, MRC is a platform for industry players to discuss
globalization and the best ways to partake in Russian e-commerce, among other topics. It is
vital to not go at it alone; collaboration is the main way to succeed within the Russian market.
2. Usually, the rate of returning customers using the same card is high. Strangely, this is not the case in Russia.
There are several potential explanations for this (which most often merchants cannot see). It could be because
of shorter expiration dates, frequent change of limits by banks or low limits, consumers changing often of credit
card or banks, consumers having a very irregular source of incomes and therefore with a lot of variations in their
account balance, consumers "burning" their card limit every month, etc.
34

CROSS-BORDER
SALES TO RUSSIA
CASE STUDIES
report@ewdn.com
35

Case study | eBay
eBay: Cross-border leader sees Russia as
priority market but feels threatened by
troubled international relations
Since it launched its first Russian version in 2010, eBay has asserted itself as a dominant
player on the Russian cross-border e-commerce scene, with only one player – China’s
Aliexpress – matching its sales volumes with an approximate 40% market share for each of
the two giants.
In a market almost doubling each year, the platform generated no less than $400 million in
sales to Russia in 2012.1 By late 2013, the company was sending 90,000 of parcels into
Russia daily, eclipsing all other western retailers, as it reached the mark of one million active
buyersi the country.2 Some press sources have cited eBay as among the six largest Internet
retailers in Russia, with average monthly turnover of around $63 million as of early 2014.
Success is explained by eBay’s trustful brand, wide product range, low-cost offerings
(especially by a growing number of Chinese retailers),3 continued site localization efforts, and
close ties with Russia-focused mail forwarders.
Yet there is still a feeling eBay is only beginning to unlock the potential of the Russian cross-border
market. Company revenues exceeded $16 billion in 2013, of which around half
originated outside of the USA. According to the Russian office of research firm IDC, Russia
amounts to no more than 5% of eBay’s global audience and is not among the leading
revenue-generating markets for the marketplace.4
§ Growing focus on new services and local logistical partnerships
Having decided to localize, eBay has been busy throughout 2014 developing new services for
Russian consumers – an approach stemming from eBay’s strategic drive to increase
presence in emerging markets.5
After rolling out a Russia-based social network for eBay users, called "eBay Social," in July
2014 the company offered to provide local users with cash bonuses for recommending
products on the network to members of the community.6
1. The company has not disclosed its 2013 figures.
2. Defined as making at least one purchase in the previous 365 days
3. These could represent up to a third of eBay trade to Russia, according to Head of NAMO Alexander Ivanov
4. http://www.kommersant.ru/doc/2530206
5. As stated in eBay’s Q2 2014 report: “The growth of Internet users is accelerating in some countries and
regions where we do not have a significant presence (e.g., Brazil/Latin America, Russia, China and certain other
countries in which we do not have a meaningful (or, in some cases, any) domestic business). If we are unable to
establish our businesses and drive adoption of our services in such markets, our future growth would be
negatively impacted. New users in such markets exhibit different behaviors than those from our more developed
markets; including fewer interactions, lower levels of engagement, lower conversion and/or lower values of each
interaction or conversion.”
6. http://lenta.ru/news/2014/07/18/ebay/
36

Case study | eBay
The strategy is focused on taking advantage of Russia’s strong social media scene, following
the social media marketing operations of Chinese marketplace AliExpress – in particular, the
iTao social content platform launched by AliExpress’ parent company Alibaba in May 2014
(see interview below).
Another service introduced by eBay in the summer of 2014 was titled "Collections." This
software tool helps classify goods by categories, giving consumers the opportunity to create a
selection of products united by one idea or theme that is then available on their eBay
homepage.7 Having already been launched in Western markets in 2013, the implementation
of the service in Russia demonstrates the growing desire by eBay to integrate Russian
consumers with its global offerings.
On the logistics side, the online marketplace signed a memorandum of cooperation with the
Russian Post in July 2014 in a bid to reduce the time of delivery of goods to Russia from the
company's major markets.8 With the national postal operator responsible for nearly 95% of e-
Bay’s shipment to Russia – and long delivery times one of the biggest complaints of Russian
cross-border consumers – the partnership is an important step in improving service quality.
The first joint project, christened ePaket, was set to be launch in August 2014, with customers
able to send a parcel through eBay at an accelerated rate. The company will provide the
operator with the necessary parcel information and the Russian Post’s database will be
integrated with other systems used by eBay, such as Bitrix and CNS, with which the company
has also signed partnership agreements.
§ Ruble devaluation and Ukraine crisis providing obstacles to operations
There is certainly plenty of motivation for eBay’s continued activity in Russia. Domestic e-commerce
is expanding at a yearly average rate of 30%, while cross-border volume has
almost doubled every year.
However, the lucrative Russian market also offers significant challenges for the US giant.
The ruble has lost up to one fifth of its value compared to the US dollar from early 2013 to
early 2014, making foreign purchases for Russian consumers increasingly more expensive.9
eBay has responded with a campaign to offset the ruble’s fall, offering its Russian customers
to return to the exchange rate of September 2013, which was more favorable to them.
An issue that might be more difficult to circumvent is the political and regulatory fallout of the
Ukraine crisis. The political standoff between the US and Russian governments has led to
sanctions and measures that threaten to undermine the international payment processing
capabilities of Russian consumers.
7. http://oborot.ru/news/14559/10
8. http://www.ewdn.com/2014/07/25/ebay-and-russian-post-agree-to-accelerate-cross-border-deliveries-to-russia/
9. eBay’s 2Q 2014 report cites currency fluctuations as significant threat to its business model: “Our cross-border
trade is also subject to, and may be impacted by, currency exchange rate fluctuations. To the extent the U.S. dollar
strengthens against the Euro, the British pound, the Australian dollar or other currencies, cross-border trade related
to purchases of dollar-denominated goods (or goods from those Asia-Pacific countries whose currencies tend to
follow the dollar) by non-U.S. purchasers will likely decrease, and that decrease will likely not be offset by a
corresponding increase in cross-border trade involving purchases by U.S. buyers of goods denominated in other
currencies. Even if cross-border trade is not reduced, if more sellers who accept PayPal begin to offer their goods or
services in multiple currencies, and to arrange for withdrawal of balances to local bank accounts in multiple
countries, this could reduce PayPal’s revenues from foreign exchange fees.”
37

Case study | eBay
With US payment operators Visa and MasterCard under pressure to suspend services to
some Russian banks, President Vladimir Putin has signed a law obliging international bank
card processing operators to pay a large security deposit to continue operations in the
country. As of summer 2014, while Visa and MasterCard where still in discussion with the
Russian authorities, the future of their activities in Russia still seemed uncertain.
eBay harbors significant concerns that further international sanctions against Russia over its
policy in Ukraine could result in major legal changes for international payment systems
operating in Russia, which would have a sizable impact on eBay’s cross-border sales.
The company, nevertheless, is reaffirming its strong commitment to Russia. "We said three
years ago that the Russian marketplace is eBay's top priority in emerging markets. It was true
then and it is true now," eBay Deputy Head Wendy Jones told a news conference10 following
the release of eBay’s quarterly report.
Something drastic would have to occur for eBay to re-evaluate its cross-border presence in
Russia, where the company is investing in a sustainable relationship with consumers.
10. http://www.themoscowtimes.com/business/article/russia-still-top-priority-for-ebay-in-emerging-markets/503916.html
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