Many of Russia’s highest-selling brands at wholesale, including Gucci and Dior, still don’t operate their own local e-store. The Russian e-commerce market has seen rapid growth in the last five years, after a sluggish early adoption rate based on low consumer trust, a preference for cash payments and lack of delivery and return services. Millennials in St Petersburg and Moscow were the most likely group to shop online in Russia in 2018-19, according to PWC. Now, Covid-19 has accelerated e-commerce growth more broadly, boosting penetration among sceptical older consumers and outside luxury clusters of the main two cities.
Russian consumers and market nuances, including a dislike for prepaying for goods (preferring to see the items in hand before agreeing to payment), price sensitivity and poor local delivery options, have deterred international brands from launching, preferring a cross-border offering. That’s been an opportunity for domestic e-commerce platforms, like luxury department store Tsum and mid-market player Wildberries, who have developed leading apparel e-commerce businesses to harness the $4.8 billion of annual online clothing sales ahead of international luxury brands.
“A lot of people still don’t get it,” says Alexander Reebok, managing director of the Mercury Group, Russia’s biggest luxury goods group and owner of leading retailer Tsum. “Even today, after two months of Covid-19, people haven’t overcome the fear or reluctance to go online because they don’t know how easy it is. It is our job to show them,” he says. Tsum launched e-commerce in 2011, but six years later, it represented just 10 per cent of total sales. That’s tripled to 30 per cent by the beginning of 2020.
In 2019, Russian apparel e-commerce climbed 20 per cent, according to Euromonitor International and is expected to rise 25 per cent to $6 billion in 2020. Online apparel is 13 per cent of the total clothing market and is expected to grow faster this year than the US (13 per cent), UK (11 per cent) and China (13 per cent). These estimates are pre-Covid-19 and don’t take into account the sales spikes during the pandemic.
Reassuring uncertain first-time online shoppers has been core to Tsum’s growth. It has hired extra customer service staff during lockdown to advise clients on online purchases over the phone, from fabric details to fit. “The biggest challenge is to make the customer understand how easy it is to shop online,” Reebok says, “if you are an offline customer, you are used to having direct contact with a person you trust.”
The retailer offers a fast courier service (same day or next day) that allows customers to try on pieces before they pay for them, and then pay the courier just for the items they don’t return. This mimics the store experience of trying on in a fitting room with no financial ties and appeals to older consumers who don’t like to buy things on credit.
“I don’t think everybody was sufficiently thinking initially what is important for the 40-plus customer segment or the more sceptical customer segment before,” says Martijn Peeters, Russia consulting leader at PWC. “Now, that’s something that brands are having to sort of catch up with, especially with Covid-19.” This payment model requires a lot of working capital and creates costly returns, but it gives Tsum an edge over international luxury players.
“In the mid-2000s, there were virtually no online clothing stores and people didn’t trust them,” says Tatyana Bakalchuk, founder and CEO of Wildberries, the biggest fashion e-commerce platform domestically with $3.5 billion annual sales. “We had to break down the stereotypes, and gain the trust of customers from scratch.” Wildberries’s 2019 sales rose 94 per cent last year, and since April, the number of new customers has more than doubled compared to the same period last year, with increased penetration among consumers over 55, and consumers outside of the main cities amid Covid-19.
Wildberries, which stocks international high street brands like Mango and Levi’s with luxury brands like Versace and Moschino, originally followed the pay-upon-receipt model. But to avoid handling money and cards during the pandemic, it began to only issue prepaid orders.
“At first it seemed unfamiliar to our customers, and we noticed some decrease in their buying activity,” says Bakalchuk. “But quite quickly, the negative trend was replaced by positive growth rates: in April the number of pieces purchased was up 40 per cent on 2019,” she says.
Smaller luxury players say prepaid e-commerce can work but requires a lot of reassurance through customer service. “It’s quite scary in Russia to pay a new e-store, even if you know the brand very well,” says Andrey Artyomov, founder and designer of nine-year-old Russian brand WOS (previously Walk of Shame), which has 200 stockists worldwide.
The brand launched e-commerce in January of this year in anticipation of the pandemic and employs three client representatives exclusively to advise and reassure its customers before they buy online. “Every item requires a conversation over the phone or on Instagram before the sale,” says Artyomov. Before Covid-19, e-commerce represented just 1 per cent of total sales. But WOS has seen a 1000 per cent increase in online sales between January and May, and online makes up 7.7 per cent of the brand’s €820,000 in total sales for this period.
“I would advise international brands to be patient,” says Nikolay Potylitsin, the brand’s director of international operations, “Russian payments systems and customs are hard, and you have to be careful of Russian consumer habits,” he says.
International brands need to build their own logistics operation domestically, to compete with local players’ sophisticated delivery and returns systems. “The Russian consumer is spoiled with convenient services and unlikely to be willing to pay for delivery, buy without trying on, and wait for a long delivery,” says Mantas Kaluina, research manager at Euromonitor.
Bakalchuk launched a Wildberries logistics service early on, which was a critical moment for the company. “We tried to work with different courier services, but faced problems which had a serious impact on the reputation of the store: the loss and damage to goods, the failure of delivery,” she says. Now, the company has control over the timing and quality of its fulfilment.
Balenciaga and Alexander McQueen have Russian sites supported by the outgoing Kering – Yoox Net-a-Porter partnership. But delivery comes from overseas so customers must pay for customs on orders over €200 and can wait up to four weeks for their goods. Kering has outlined plans to develop its own online flagships this year, but it declined to share if there are plans to launch in Russia.
Louis Vuitton is ahead including operating a Russian subsidiary, its own delivery system and its own warehouse so it can shield consumers from customs delays and charges, delivering free to 400 Russian cities from Kaliningrad to Vladivostok. The service has been operational since November 2018 but was announced publicly by the brand at the end of last year.
Tsum now has pick-up points in Moscow, St Petersburg, Krasnodar and Sochi.
Try-on and returns are “the main obstacle” to online fashion shopping, says Bakalchuk. And so alongside the courier service, Russian platforms have developed pick-up points across the country that allow customers to try on clothing and return it free of charge.
The introduction of pick-up points helps brands capitalise on increasing penetration across smaller Russian cities. For those consumers, the focus is availability as opposed to delivery speed, says Peeters. Allowing them to try on premium or international brands they wouldn’t be able to find outside of St Petersburg or Moscow, without delivery cost and via a pick-up point where they can try on at any time, is a huge plus. “We see a significant increase in the number of online purchases among residents of small Russian cities where our pick-up points are open,” says Bakalchuk.
For higher ticket purchases, however, international luxury brands must be mindful of the time it takes to build an online user base, even for trusted local players. “In other cities, our e-commerce is reasonably big, but I wouldn’t say it’s huge,” says Reebok. “It will take time to develop.” Tsum now has pick-up points in Krasnodar and Sochi as well as Moscow and St Petersburg.
adapted from Conde Nast / Vogue Business
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