This article delves into the notable expansion of the e-commerce sector in Russia, with a specific focus on the significant influence of sanctions. By examining sources, data from insights provided by the Association of Internet Trade Companies (AKIT), the study explores how sanctions have shaped the Russian e-commerce landscape. The research highlights the impact of sanctions on cross-border trade, revealing a substantial decline in transnational commerce and subsequent changes in consumer behavior. Factors such as the withdrawal of Western internet retailers, the departure of foreign logistics companies, and limitations on payment methods have played a pivotal role in these transformations. The study underscores the challenges faced by Russian consumers due to reduced access to international online retailers and longer delivery times, leading to shifts in purchasing patterns. In response, alternative niche services have emerged to bridge the gap. Overall, this research contributes to the understanding of the expanding e-commerce market in Russia and emphasizes the substantial impact of sanctions on its growth trajectory. The findings highlight the resilience and adaptability of the Russian e-commerce sector in response to external pressures, while shedding light on the unique dynamics and trends shaping the country's digital retail landscape.
Keywords: e-commerce, Russia, sanctions, expansion, online retail, consumer behavior, market growth, international trade, digital technologies, regulatory framework, market competition, supply chain, payment systems, logistics.
Introduction
The e-commerce sector in Russia has witnessed substantial growth in recent years, reshaping the business landscape and consumer behavior. Amidst this expansion, economic sanctions imposed on Russia by various nations have emerged as a significant external factor that can potentially influence the trajectory and dynamics of the e-commerce industry. Understanding the multifaceted relationship between e-commerce development in Russia and the influence of sanctions is essential for comprehending the challenges, opportunities, and adaptations within this evolving sector. This article aims to unveil the complex dynamics and interdependencies between e-commerce development and the influence of sanctions in Russia, thereby contributing to a deeper understanding of the underlying mechanisms and implications.
Objectives:
- Assess the impact of economic sanctions on the growth and evolution of the e-commerce sector in Russia: This objective involves conducting a comprehensive analysis of the direct and indirect effects of economic sanctions on key indicators of e-commerce development. By evaluating the influence of sanctions on market size, consumer behavior, digital infrastructure, and business strategies, this objective aims to provide a nuanced understanding of how sanctions have shaped the overall trajectory of the e-commerce industry in Russia.
- Examine the adaptations and strategies employed by Russian e-commerce businesses in response to sanctions: This objective entails a detailed examination of the strategies and adaptations employed by Russian e-commerce businesses to mitigate the adverse effects of economic sanctions. Through in-depth case studies and empirical analysis, this objective seeks to uncover the innovative measures and strategic responses undertaken by businesses to overcome the challenges posed by restricted access to international markets, payment systems, and technology. By examining these adaptations, this objective aims to shed light on the resourcefulness and resilience of Russian e-commerce businesses in navigating the complex sanctions environment.
By addressing these objectives, this article intends to contribute to the existing scholarly discourse on e-commerce development in Russia and the influence of sanctions. The findings, analysis, and recommendations will provide valuable insights for researchers, and industry professionals involved in shaping the future trajectory of the e-commerce sector in Russia.
Literature review
This literature review aims to critically examine the interplay between economic sanctions and the expanding e-commerce sector in Russia. By reviewing relevant scholarly works, this study provides a comprehensive overview of the current understanding of how economic sanctions have shaped the growth, dynamics, and strategies within the Russian e-commerce landscape.
The Growth of E-commerce in Russia: Scholarly studies have extensively documented the remarkable growth of the e-commerce sector in Russia. These studies have explored various factors driving this expansion, including increasing internet penetration, evolving consumer behavior, technological advancements, and the adoption of e-commerce platforms by businesses. These investigations provide a solid foundation for comprehending the overall potential and trajectory of the e-commerce industry in Russia.
The Impact of Sanctions on E-commerce: While research specifically focusing on the influence of economic sanctions on the e-commerce sector in Russia is limited, emerging studies have begun to shed light on this relationship. These investigations have explored how economic sanctions have affected consumer behavior, leading to shifts in preferences towards domestic e-commerce platforms and influencing cross-border transactions. Furthermore, scholars have examined the challenges encountered by Russian e-commerce businesses due to restricted access to international payment systems, logistics networks, and digital technologies. By illuminating the complex ways in which sanctions have shaped the e-commerce landscape in Russia, these studies contribute to a deeper understanding of this evolving sector.
Strategies and Adaptations: In response to economic sanctions, Russian e-commerce businesses have implemented diverse strategies and adaptations to mitigate their impact. Scholars have examined the measures taken by these businesses to diversify their markets, optimize supply chains, bolster digital infrastructure, and develop innovative solutions. These studies provide valuable insights into the resilience and adaptability of the e-commerce sector in Russia, highlighting the strategies employed by businesses to sustain growth and navigate the challenging circumstances posed by sanctions.
While research specifically focusing on the role of sanctions in the e-commerce sector in Russia is still relatively limited, existing studies provide a solid foundation for further investigation. The synthesis of existing literature reveals the need for future research to delve deeper into the nuanced interactions between e-commerce growth, economic sanctions, consumer behavior, market dynamics, and the regulatory environment in Russia. Such research will not only advance academic understanding but also inform policy decisions and guide business strategies, fostering sustainable growth and resilience within Russia's evolving e-commerce ecosystem.
The decline of cross-border trade
The decline of cross-border trade in the Russian e-commerce market is a consequential outcome influenced by a combination of economic sanctions and other factors. The COVID-19 pandemic, characterized by lockdown measures in 2020, played a significant role in the global surge of e-commerce, including its development in Russia. Subsequently, from early 2022, political developments began to exert their influence on the Russian e-commerce landscape, giving rise to challenges and consequences for the industry.
A salient consequence of the economic sanctions imposed on Russia was the substantial decrease observed in cross-border trade. This decline was an inevitable outcome attributed to various factors. Firstly, numerous Western online retailers, including prominent entities such as ASOS, iHerb, and Amazon, promptly terminated their operations within the Russian market. Notably, these retailers accounted for a significant share of cross-border transactions. Secondly, the departure of foreign logistics companies further exacerbated the situation, leading to extended delivery times. Whereas in 2022, orders from China were typically delivered within 2–3 weeks, the duration now exceeds a month. Similarly, orders from Europe necessitated 2–3 weeks for delivery, while orders from the United States required a duration of 1.5 months or longer, as compared to the previous 5–7 day timeframe.
An additional noteworthy impact of the sanctions manifested in the restrictions imposed on payments made through Russian bank cards in foreign online stores. Consequently, Russian consumers encountered challenges in placing orders, even if the stores continued to ship products to Russia. Notably, the market was affected to a limited extent, as only a fraction of Russian individuals possessed foreign bank cards. To circumvent these limitations, novel services emerged, enabling purchases from Western online stores through intermediaries who placed orders on behalf of customers and facilitated delivery via shipping services. However, it is important to note that these services catered to a niche segment of the Russian population and did not have widespread adoption.
As a result, the volume of cross-border online trade in the first half of 2022 witnessed a significant decline of approximately one-third, amounting to 103 billion rubles. This accounted for a mere 4.5 % of the overall e-commerce market, according to data from the Association of Internet Trade Companies (AKIT). In contrast, cross-border trade constituted 13.3 % of the market in 2021. These findings shed light on the intricate dynamics of the impact of economic sanctions on cross-border trade in the Russian e-commerce sector.
Sanctions have exerted a profound and detrimental effect on advertising activities conducted on prohibited social media platforms, which previously served as vital channels for attracting new customers. In the face of these challenging circumstances, not every business successfully navigated the process of restructuring their customer acquisition strategies, resulting in a noticeable decline in sales performance. However, certain enterprises managed to adapt by redirecting their promotional endeavors towards alternative platforms such as «VKontakte», «Yandex», and «Telegram» in an attempt to reach potential buyers. Nonetheless, by the year 2023, the migration of all advertisers to these platforms had already occurred, consequently engendering a notably elevated level of competition within this advertising landscape.
The Exits of Foreign Brands: A Pivotal Development in the Russian Market
A momentous occurrence unfolded in the initial half of 2022 with the departure of numerous foreign brands from the Russian market. Unquestionably, this event left an indelible mark on the retail industry, exerting significant repercussions on shopping centers. Curiously, in stark contrast, the e-commerce market remained impervious to any detrimental effects, with some indications suggesting that the departure of these brands even bolstered its growth. This prompts an inquiry into the underlying factors that precipitated this phenomenon.
Initially, it is noteworthy that the departure of foreign companies manifested an intriguing paradox, as their online performance proved to be markedly suboptimal. An examination of the top 100 online retailers of 2021 reveals a mere six brands among the departed: IKEA, Samsung, H&M, Adidas, Apple, and Zara. While it is acknowledged that numerous brands were present on marketplaces and multi-brand online stores, the bulk of their sales remained rooted in offline brick-and-mortar establishments.
Furthermore, it is pertinent to note that several departing companies have resorted to selling their remaining inventory on marketplaces. Prominent examples include Zara and other brands affiliated with the Inditex holding, H&M, Mango, Decathlon, among others. Under different circumstances, the bulk of their merchandise would have been retailed through physical brick-and-mortar stores. However, the shifting landscape has necessitated these brands to contribute to the turnover of online marketplaces.
Additionally, an outcome stemming from the departure of brands is the phenomenon wherein individuals, seeking familiarity, gravitated towards the same marketplaces. Concurrently, former suppliers of the departed companies also hastened to establish a presence in these digital platforms. This is exemplified vividly in the case of IKEA, whereby select contractors swiftly commenced listing their products on online platforms, prompting the creation of dedicated sections on these websites. Consequently, the sales of furniture on marketplaces have observed a notable surge in growth.
Another illustrative instance pertains to the discernible shift in market dynamics. In the first half of 2022, as compared to the corresponding period in 2021, sales of sports goods on marketplaces experienced a substantial surge, estimated at a three-and-a-half-fold increase, as reported by the Moneyplace service. Although the mechanism of parallel import, which had been a subject of active discourse, has yet to reach its full operational capacity, certain goods have already become available for purchase, predominantly through online retail channels.
While shopping centers continue to grapple with vacant spaces, the virtual realm has witnessed a rapid replenishment of its digital shelves. It is imperative to acknowledge that e-commerce comprises a myriad of distinct sellers, each tasked with sourcing assortments and presenting them to prospective buyers. Prominent e-commerce giants such as Wildberries and Ozon primarily serve as platforms for hundreds of thousands of sellers operating on their respective sites. It is this diverse ecosystem that imparts the market with the inherent advantage of flexibility.
The departure of foreign brands, in conjunction with a decline in purchasing power, necessitated the substitution of products from the medium and high-end segments with more affordable alternatives. In response, sellers commenced active importation of goods from countries such as China, Turkey, and neighboring regions. A striking exemplification of this trend emerges from the realm of sports brands, wherein the Uzbek brand Uzcotton, as reported by the Moneyplace service, supplanted the American brand New Balance in the top seven most sought-after sports brands on marketplaces.
Another noteworthy response to the scarcity of goods has been the proliferation of private labels. These labels have witnessed active registration by notable entities such as Yandex.Market, Ozon, and the M.video-Eldorado group. Among the various categories in which sellers are actively producing or planning to produce goods under their own brands are accessories, children's products, clothing, electronics, and household appliances. Consequently, it is conceivable that in the near future, our consumer landscape will feature televisions, microwave ovens, kettles, and other appliances bearing the brands of these sellers.
Another consequential response to the contraction of product offerings is the emergence of the second-hand goods market, referred to by sellers as 'resale.' Previously, major sellers had abstained from venturing into this category, but the scarcity of goods has compelled them to explore the sale of used items, albeit within the most lucrative segments. Primarily, smartphones from reputable brands have become a focal point. Notably, Yandex.Market and Lamoda have initiated the sale of pre-owned clothing, footwear, and accessories from luxury brands. Ozon, taking a step further, has cautiously introduced a section featuring advertisements from individual sellers exclusive to residents of Rostov-on-Don as a trial initiative. Should the experiment prove successful, the marketplace would pose a competitive challenge to Avito.
Cost Reduction and the Quest for New Growth Opportunities
In bygone eras, industry titans competed not merely for profitability but also for market dominance. These behemoths were able to channel billions of investor funds towards securing a brighter future, doing so willingly. However, in the current economic landscape, sustaining previous levels of expenditure has proven untenable, necessitating a shift towards cost-saving measures. Often, such savings are directed towards internal business processes that remain inconspicuous to external observers. Certain actions may go largely unnoticed, such as Ozon's discontinuation of complimentary packaging at pick-up points or Yandex.Market's transition from cardboard to bag-based packaging. Additionally, reports have surfaced regarding workforce reductions implemented by select companies.
Market participants are compelled to divest from unprofitable or excessively costly endeavors. Illustratively, Ozon made the decision to discontinue its 15-minute grocery delivery service, while X5 opted to shutter its delivery service known as 'About.' These instances serve as exemplars of a broader trend wherein companies are reevaluating and curtailing ventures that fail to yield satisfactory returns. Analogous cases abound within the industry, further underscoring the imperative of cost-conscious decision-making.
An additional avenue garnering considerable attention for enhancing profitability involves the implementation of fees for services previously rendered free of charge. Particularly noteworthy is the prominent case of Wildberries marketplace, which sparked significant controversy among buyers due to the introduction of return fees. This measure has witnessed intermittent implementation and subsequent rescindment for specific customers in recent months. Looking ahead, the marketplace has expressed intentions to adopt a dynamic pricing model, reminiscent of the well-known practices observed in Yandex.Taxi.
Tariff revisions for sellers operating on marketplaces have witnessed periodic increases, evoking sentiments of discontent among these merchants. Concurrently, other sellers are exploring the prospect of implementing paid shipping; however, consumers have yet to embrace this concept. A notable illustration can be observed in the case of the Samokat express food delivery service, which retracted its decision to introduce paid delivery following a trial period.
Another consequential outcome stemming from the pursuit of profitability is the quest for alternative revenue streams, prompting companies to offer services that may deviate from their original vision. An illustrative instance can be observed in the case of the Samokat express food delivery service, which opted to provide affordable food deliveries in smaller wholesale quantities, shifting away from its initial commitment to 15-minute deliveries to offering next-day service instead. Similarly, 'Yandex.Eda,' as implied by its name, initially focused on food delivery but has since expanded its offerings to include the delivery of pharmaceuticals and floral arrangements.
Retailers have embarked on the development of 24/7 delivery services, initially focusing on the delivery of food and pharmaceuticals. Notably, the scope of round-the-clock delivery has expanded to include floral arrangements as well. Pushing the boundaries further, M.video-Eldorado has taken the initiative to offer around-the-clock delivery services for electronics and household appliances. While the extent of consumer demand and the feasibility of compensating couriers for overnight work remain uncertain, retailers demonstrate a clear conviction that such endeavors will contribute to their revenue generation.
Marketplaces are actively diversifying their revenue streams by offering ancillary services to their sellers, with a primary focus on advertising. This strategic shift has yielded fruitful results. In its Q2 2022 report, Ozon disclosed that revenue from services surpassed that of goods for the first time. It is worth noting that Amazon has long derived greater revenue from advertising than from direct sales. Ozon, too, remains committed to expanding its service offerings. In addition to facilitating individual-to-individual transactions through a bulletin board platform, the company recently ventured into accident insurance sales.
The pursuit of profitability is yielding tangible outcomes. While «Yandex.Market» appears to continue operating at a loss, the magnitude is not substantial enough to plunge the entire parent corporation into financial distress. Ozon, on the other hand, demonstrated a profit in the second quarter, albeit exclusively on an operational basis. Notably, Wildberries refrained from reporting profit in its recent disclosure, in contrast to its prior regular reporting of such financial metrics.
Seamless Delivery: The Precision of Clockwork Efficiency
The seamless delivery of orders stands as a pivotal prerequisite for the advancement of the e-commerce landscape. In late February, concerns arose regarding the potential challenges and significant delays in delivery to certain regions. Compounding this issue, several foreign courier companies chose to withdraw from the Russian market. We have diligently monitored the delivery timelines of online orders and can confidently assert that any notable increase in delivery duration has been negligible, if not inconsequential. The speed of delivery throughout the first half of 2022 remained relatively consistent with the previous year. Furthermore, the void left by departing companies has been effectively filled by domestic delivery service providers.
The market is characterized by the presence of numerous courier companies, both at the federal and regional levels, rendering it a highly competitive and well-established industry. Consequently, the withdrawal of select companies had minimal impact on the overall market dynamics. Unlike international logistics, domestic operations remained intact without any disruptions, ensuring its continued seamless functionality.
As a result of these factors, the e-commerce market has sustained its remarkable expansion, a trend initiated during the unprecedented circumstances of the pandemic in 2020. Anticipated to persist, this growth trajectory can be attributed to various catalysts. These include the establishment of bonded warehouses, the forthcoming introduction of experimental remote sales of prescription drugs scheduled for the following year, and the long-awaited accessibility of remote sales for alcoholic beverages. However, the primary impetus driving this growth remains the gradual acquisition of market share from traditional brick-and-mortar retail. The exigencies of 2020 compelled countless consumers to surmount key barriers to online shopping, namely, site registration and the provision of payment details. Having realized the convenience inherent in online purchasing, consumers are now reluctant to relinquish these benefits.
Conclusion
In conclusion, this research has provided valuable insights into the dynamics of e-commerce development in Russia, with a particular focus on the influence of sanctions. Through an analysis of key factors such as the departure of foreign brands, the growth of online marketplaces, the emergence of new growth points, and the implications for delivery services, a comprehensive understanding of the evolving e-commerce landscape in the country has been achieved.
Despite the challenges posed by sanctions, the e-commerce market in Russia has displayed remarkable resilience and adaptability. The departure of foreign brands has been mitigated by the entrance of local players, who have successfully filled the void and contributed to the market's sustained growth. Additionally, the increasing popularity of online shopping, coupled with the introduction of new services and the expansion of market share, has served as a catalyst for the rapid advancement of e-commerce in the region.
While notable achievements have been made, it is important to acknowledge that certain hurdles remain. Regulatory considerations and the establishment of customer trust are ongoing concerns that require continuous attention. Nevertheless, the outlook for e-commerce in Russia is promising. By comprehending and effectively responding to these dynamics, policymakers, businesses, and stakeholders can make informed decisions and implement strategies that foster the further development of this critical sector.
This research contributes to the existing body of knowledge by providing a comprehensive assessment of the e-commerce landscape in Russia and its response to sanctions. Future studies can delve deeper into specific aspects such as regulatory frameworks, consumer behavior, and the impact on traditional brick-and-mortar retail. By continually exploring and understanding the intricacies of e-commerce in Russia, researchers can provide valuable insights to inform policy decisions and guide the sustainable growth of this vital industry.
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