IMPACT OF COVID-19 ON E-COMMERCE MARKET DEVELOPMENT IN RUSSIAN FEDERATION

IMPACT OF COVID-19 ON E-COMMERCE MARKET DEVELOPMENT IN RUSSIAN FEDERATION

Anton Mandzyuk

Student, St. Petersburg State University,

Russia, Saint Petersburg

Mikhail Lubochkin

PhD, Saint Petersburg State University,

Russia, Saint Petersburg

Introduction

Over the past decades, the rapid development of digital technologies, including new sources of communication, smartphones and personal computers has majorly influenced the rise of internet trade volume, thus far changing the landscape of the global economy. The growth of ecommerce, which has started booming since the mid 1990-s, has been seen annually with double-digit growth around the globe [1].

The ecommerce is a vital driver of the emerging digital economy and the result of rapidly exploding advances in the internet use and changes in customer purchase behavior. According the study of the Juniper Research, the total amount of Internet gsof thin (IoT) connections will reach 83 billion by 2024, representing the projected expansion rate of 130% in the next 4 years [2]. In this age, the globalization of internet has allowed 45% of 8 billion population to freely access and make transactions on numerous online marketplaces inevitably emerging in the World Wide Web. The German analytical agency Statista estimated that in 20191.92 billion people made purchases and sales online, while the worldwide ecommerce sales accumulated 4.3 trillion U.S. dollars [3].

Russian e-commerce market overview

The total number of internet users in Russia is accumulated around 118 million, making it around 81% of total population in the country [4]. Moreover, every second user from 16-55 years old makes purchases online minimum twice a year, whereas 77% of orders are made at least once a month.  According to Federal State Statistic Service, the share of online sales in total retail volume has strengthened in recent years and now is equivalent to 5.9% with total output of 4.8 trillion rubles.

In 2020, Russia delivered 883 million parcels from online stores. Reasoning behind the recent rise of online delivery relies on the dominant presence of several ecommerce giants in the market (Table 1). Ecommerce analytical agency Data Insight in the rating E-commerce Index TOP - 100 (2019) published the performance of industry leaders of online sales in Russian internet marketplaces [5].

For example, the Russian online retailer Wildberries owned by Tatyana Bakalchuk is 15 years on the market, 27 thousand employees in the state, 500 thousand orders per day, five orders per second and 3 million articles on its website. With the highest rank 4^th year in the row, company improved previous results with sales increase of 89%. Consequently, Wildberries is now ahead of the average growth rate in e-commerce in the country.

 Citylink has held the second place for three years due to the large network of 650 stores and distribution centers in 360 cities. Other important stakeholder in online market is Ozon. Company raised 1 billion U.S. dollars during its successful Initial Public Offering (IPO) in 2019. Ozon market capitalization now is evaluated at $7.9 billion [6].

Table 1.

Top 10 online sales companies in Russia (2019)

COVID-19 impact

The recent months has been difficult for the world due the spread of the coronavirus COVID-19. There is no market, which has not been affected due to damages caused by the infection outbreak. Coronavirus infection instantly crushed global financial market and economic performance of most offline businesses due to the need lockdown measures adopted by the government. Consequently, the change of the consumer attitude towards online shopping stimulated the burst of internet activity and ecommerce transactions. The pandemic has stimulated the shift in the direction of the virtual world and accelerated long-lasting changes in behavior patterns of consumers. For instance, from the survey «COVID-19 and E-commerce» of UNCTAD and Netcomm Suisse, which covered 3,700 consumers from 9 countries, it can be underlined that more than half of the respondents shop more online than ever before [7].

Figure 1. Forecast e-commerce market value in Russia influenced by the coronavirus (COVID-19) pandemic from 2020 to 2024 (in trillion Russian rubles)

For Russia situation, pandemic has been the key driver of the ecommerce boom, making the share of online sales at 10.9% of total retail sales [8]. According to the data gathered from Data Analytics and Statista, the effects of the pandemic will intensify the development of internet trade. The forecast (picture 1) examines that the average growth rate of internet trade from 2019-2024 will reach 33.2% overtaking the 26, 6% without the impact of COVID-19. Natural growth rate will result in 5.6 trillion rubles compared with 7.2 in 2024. Thus far, factors of the pandemic will gain addition 1.6 trillion in 5 years. The period of lockdown provided additional 10 million online customers with intensified amount of purchases. Moreover, the transition to the remote work of 5-7 million employees in 2020 will also improve the chances of additional online orders. Another factor is the growth of FMCG sales, which increased 3.5 times during the pandemic providing additional 150 billion rubles of online revenues above the initial forecast [8].

Another important factor, which has helped the spread of online sales, is logistics. Russia is widely spread across the continent with 11 different time zones that is why the improvement of logistics and distribution centers is a vital factor the online trade prosperity. For instance, in April-May of 2020, Ozon witnessed an 84% growth in new active customers compared to the previous years. This happened largely due to the $300 million investments in logistic centers through the country.

What is more, online grocery soared during the pandemic in Russia. Yandex service Yandex.Lavka provides grocery delivery in 15 minutes helping the food delievery department, Yandex.Eda. Sbermarket pointed that its orders volume raised 15-17 times higher in the third quarter of 2020 than in the first three months of same year. Another online grocer Utkonos claimed a 65% rise in sales year-on-year basis in the third quarter, when the lockdown in the country was set [9]. Finally yet importantly, there was unseen plummet of offline retail. As Infoline estimates, the COVID-19 lockdown lead to 10% of offline retailer’s closure. Industries, which witnessed the most damage, include luxury goods, fitness, tourism and public catering. By the information of Ministry of Economic Development, retail sales decreased by 4.2%. During the period of strong lockdown retail sales plummeted by 25% compared to the previous year indicators. Logically, the only source of marketing for non-food retailers left was online [10].

Conclusion

Considering everything, Russian ecommerce development has been steadily improving even before the pandemic. Despite the fact that online sales share is equivalent to the 5.9% of total retail sales, the steady growth rate of 20% year-to-year basis promises future development of ecommerce.

COVID-19 pandemic has strongly damaged the economic performance of Russia. In general. However, the period of lockdown stimulated the burst of ecommerce performance. The reasoning of that relies of natural factors of lockdown period, which boosted the entrance of new online consumers. The flexibility of adaption to the current situation has helped Russian ecommerce companies to gain new 10 million more online customers. Improved logistics, online FMCG rise, remote work transition and offline retail plummet stimulates the forecast for future ecommerce development improvement reaching 7.2 trillion rubles by 2024.

References:

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