The story of ecommerce in Russia is the story of a maturing digital economy, but also oil tycoons, a fugitive, allegations of corruption and human rights violations—and a guy known as the Darth Vader of Russia.
That’s because many of its most popular platforms have partnerships with and/or investments from organizations with links to the Russian Federation.
While Russia is the largest country on Earth, geographically, it has a population less than half the size of the U.S. It was hit hard by the global recession in 2009 and the World Bank forecasts its recovery will continue through 2020. But data from the World Bank also shows internet usage in Russia has grown sharply since 2009. By 2017, it was 76 percent, which puts it on par with the U.S.
And, with increased internet access comes more online shopping. The market is still pretty small, though: JPMorgan says ecommerce accounted for 6 percent of retail sales in Russia last year, or $23 billion of $361 billion. Experts call Russia’s ecommerce market “small and behind.”
“It’s not a wealthy country,” said Forrester analyst Sucharita Kodali. “That’s the great irony—it’s this huge international relations story mainly because they have nuclear weapons. Why they are even a story about hacking doesn’t make sense to me—they have so little money, what are they paying their hackers in? Vodka and beets?”
Nevertheless, JPMorgan says Russia is the fastest-growing international ecommerce market with 38 percent growth year over year. There’s opportunity.
It is also unique in that neither Amazon nor Walmart hold an interest. Combined, the American retail giants have footholds in every continent but Antarctica, but so far seem to have not set their sights on Russia.
Instead, and perhaps not surprising given the nation’s penchant for oligarchy, many of the biggest ecommerce platforms in Russia are home-grown entities with government ties. Wildberries.ru—which started out as a fashion retailer, but has expanded to sectors like beauty, electronics, household products, toys and even some groceries—seems to be the exception as it is owned by its husband-and-wife founders and one additional private investor.
Here’s a look at the other platforms vying for the hearts and minds of Russian consumers—and how they are connected to the Russian Federation:
Alibaba: Teaming Up With a Government Fund
Analytics firm comScore said ecommerce company Alibaba had the largest share of total unique visitors to retail sites in Russia in December 2017.
Similarly, analytics firm SimilarWeb found AliExpress, Alibaba’s ecommerce platform for small- to medium-sized businesses (SMEs), had 165 million average monthly visits in Russia and is second only to the Craigslist of Russia, Avito.ru, which had 314 million.
And it seems Alibaba wants to maintain its lead.
In September, the ecommerce company said it is partnering with the Russian Federation’s investment fund (RDIF), as well as telecommunications firm MegaFon and internet services company Mail.Ru Group, on a “social commerce venture” in Russia and the Commonwealth of Independent States (CIS), which includes Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan.
According to a release, the venture will include cross-border and local marketplaces, as well as first-party retail—and AliExpress Russia will provide consumers with products from Russia, China and further abroad.
As a result of its new partnership, AliExpress Russia gains access to Mail.Ru Group’s 100 million users. Alibaba also said the partnership will accelerate the development of Russia’s digital economy, and it plans to emulate its strategy from China’s developing market.
Yandex: Partnering With Putin’s Bank
Yandex, which is kind of like the Google of Russia, has 111 million average monthly visits, per SimilarWeb, making it another top destination for Russian consumers.
It started out as a search engine in 1997 and, per its Q2 2018 earnings announcement, still commands more than 56 percent of the search market in Russia. Yandex rolled out online marketplace Yandex.Market in 2002 with products like books, films, cosmetics, footwear, clothing, stationery and toys. But, like its American counterparts, it has diversified into many additional sectors, including: advertising, news, email, payment services, maps, data, analytics, instant messaging, translation, cloud storage, last-mile deliveries, voice assistants and self-driving cars.
And, most recently, Yandex teamed up with Sberbank, which is the largest bank in Russia—and owned by the Russian Federation. Like Alibaba, Sberbank is now working with Yandex.Market to create an online marketplace and develop cross-border ecommerce.
M.Video: Owned By a Billionaire Who Pissed Off Putin
Electronics retailer M.Video has the third largest share of total unique visitors in Russia, per comScore data. As of June 30, it operated more than 800 locations in 200 cities in Russia, but, thanks to a recent deal with European electronics retailer MediaMarkt, it plans to open 60 new stores through the first half of 2019.
M.Video’s majority shareholder is Moscow investment firm Safmar Group. Safmar’s chairman is Mikhail Gutseriev, an oil tycoon—the J.R. Ewing of Russia?—with a storied history with President Vladimir Putin.
A Russian court issued a warrant for Gutseriev’s arrest in August 2007 on charges of tax evasion and fraud after he published a letter critical of the government. He fled to the U.K., where he lived until 2010 and, after his return, charges were dropped.
At the time he left, Gutseriev owned Russneft, one of Russia’s biggest oil companies. In his letter, Gutseriev reportedly said the police and tax officials colluded with his rivals to force a sale of Russneft to aluminum billionaire—and Putin ally—Oleg Deripaska. The deal fell through and he sold 49 percent to Russian private equity firm Sistema instead. He bought his stake back for $1.2 billion in June 2013, along with the remaining shares he did not already own from Russian-Federation-backed Sberbank. And now he’s investing in ecommerce.
Ozon: Backed By an Oil Baron Who May Have Ties to Crimea
Online retailer Ozon is the fourth most popular retail site in Russia, per comScore. It was founded in 1998 and serves 2.5 million customers annually.
In March, Ozon raised RUB 3.5 billion ($53 million) for logistics, product expansion and “new projects” from private equity firm Baring Vostok and telecommunications company MTS. In a statement, General Director Alexander Shulgin said he wants to accelerate growth in food, pet supplies and electronics and expand same- or next-day delivery from 40 to 60 percent of the population.
Ozon began selling fresh and frozen products—including sausages, fish, dairy and vegetables—last year. It also announced it was testing last-mile delivery via scooters in five cities including Moscow and St. Petersburg because they can more easily maneuver on busy roads and they don’t get stuck in traffic jams.
It is backed by a group of investors including Sistema, the private equity firm that bought Gutseriev’s oil company.
But, wait—there’s more: Sistema was co-founded by billionaire Vladimir Yevtushenkov, who was reportedly placed under house arrest in 2004 on charges of money laundering—which were not resolved until 2017 when he agreed to pay $1.8 billion to Rosneft, the world’s biggest publicly listed oil company, which happens to be run by the so-called Darth Vader of Russia, Igor Sechin.
The Financial Times says Sechin—who happens to be Putin’s former secretary—is the second most powerful man in Russia. He could also be Russia’s next prime minister.
Earlier this year, Congresswoman Ileana Ros-Lehtinen asked Treasury Secretary Steve Mnuchin and Secretary of State Mike Pompeo to investigate Yevtushenkov and whether he was involved in construction projects in Crimea, which Russia seized from the Ukraine in 2014 and has occupied since. According to her letter, in October 2016, at a meeting in Crimea, Putin said, “Vladimir Petrovich [Yevtushenkov] and AFK Sistema … will be constructing multipurpose medical facilities … in the Republic of Crimea.”
In response, the Departments of Treasury and State said they were investigating Yevtushenkov and Sistema as they use the Countering America’s Adversaries Through Sanctions Act to “impose costs on Russia for its aggression in Ukraine, malicious cyber intrusions and abuses of human rights.”