e-commerce in Russia, Ukraine, Belarus and...

e-commerce in Russia, Ukraine, Belarus and Kazakhstan Vladimir Kazakov Market Research Director, SCHNEIDER GROUP October 2016

Contents

Executive Summary Facts & Advantages: Russia, Ukraine, Belarus and Kazakhstan e-commerce: Role in the National Economies Growth of the e-commerce Markets and Reasons Growth of Cross-Border Sales Foreign Online Stores Markets Specifics Major Players Regulatory Environment SCHNEIDER GROUP e-commerce Solution Other Services

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This report is an overview of the e-commerce sector in Russia, Ukraine, Belarus and Kazakhstan rather than an exhaustive report. We would be happy to provide a more detailed report on a specific subject. Financial indicators in this report cover only physical goods. They do not include online travel, payments, services, corporate purchases, C2C and MLM trade. This document contains rankings of top national e-commerce players in their respective economies. Upon request, you can obtain an extended version of our report in which you can find a detailed profile of one major national player in each country and other important information.

Executive Summary (1)


e-commerce is still in a nascent state in the four countries which we review in this report However, e-commerce sectors in these countries have shown strong double-digit growth on average over the past 3 years – it is the only sector with such performance! e-commerce should be considered as an investment target This sector’s share as a percentage of GDP in each economy was between 0.6% and 1.2% in 2015 At the same time, its share as a percentage of retail ranges between 1.4% and 3.2% It is still below the European average of 8.4% and that of Germany (11.6%), the US (12.7%) and the UK (15.2%) However, growing internet usage rates, better availability of mobile connections and increased volume of domestic and international shipments are evidence that this sector’s potential has not been fully tapped and it is far from saturation All the countries have strong emerging e-commerce sectors. In terms of percentage of e-commerce in retail, Kazakhstan’s e-commerce sector appears to be slightly more advanced, with 3.2%, with Russia coming second with 2.9%

e-commerce has a lot of room for growth

Sources: Data Insight, EY, Ukrainian direct marketing association, AKIB

1.0% 1.2%

0.6% 0.6%

2.9%

2.4%

1.4%

3.2%

Russia Ukraine Belarus Kazakhstan

e-commerce turnover as a % of GDP

e-commerce turnover as a % of retail sector



Russia’s e-commerce has grown 41% on average in RUB terms, its growth has slowed somewhat but the market is changing to adapt to the crisis (the ruble has declined 54% against the USD since the start of 2014) and reach out to new customers. It is expected to grow by almost a third in 2016. Ukraine’s e-commerce sector has posted growth of 22% on average in UAH terms. It is second largest to the IT sector (25% up). Despite the domestic difficulties, the market is forecast to show strong 40% growth in 2016. The sector’s performance in Belarus was a strong 62% on average in BYR terms reflecting the market’s potential and EuroOpt’s (largest offline retailer) move to online retail. The market’s growth is expected to reach 52% in 2016. Kazakhstan’s e-commerce has grown by a strong 71% on average in KZT terms. Experts believe this sector will more than double in 2016. To understand the size of the sector in each country, we have converted numbers in local currencies into USD. They illustrate only the effect of devaluation but do not show the complete picture of the markets.

Online retail revenues, USD million

Sources: RAEK, Data Insight, EY, UDMA, AKIB

Growth of online retail revenues in local currencies

Sources: RAEK, Data Insight, prom.ua, National Bank of Belarus, EComCharge, bepaid.by, Apply Logistic Group, oanda.com, AKIB, own estimates

37%

18%

38%

68%

44%

25%

85% 74%

28% 39%

52%

116%


2014

2015

2016F

Belarus Internet penetration in 2015: 60% (2014: 59%) 66% of Internet users have online purchasing experience 0.9m online shoppers in 2015, which is 18% of users Average order value in 2015: USD 91 63% of orders are paid upon delivery 60% of orders are settled in cash 53% of orders are delivered by a courier New legislation limiting tax-free purchases to 22 EUR a month protects local retailers National and Chinese players dominate

Ukraine

Internet penetration (15 y.o.+) in 2015: 58% (2014: 57%) 26% of consumers used a mobile device to shop online in 2015 3.7m online shoppers in 2015, which is 17% of Internet users More than 50% of online shoppers were aged 14-34 More than 300m were sent to online customers in 2015 (2014: 250m), up 20% Average order value in 2015: UAH 814 Recent positive changes in regulations 47% of online shoppers used aliexpress.com



Russia Internet penetration (16 y.o.+) in 2015: 70.4% (2014: 67.5%), highest in Europe 50m consumers used a mobile device to access the Internet in 2015 30m active online shoppers in 2015 (2014: 26m), up 15% Average domestic order size in 2015 grew by 8% while average cross-border order dropped 14% Shopping in foreign online stores was up 55% Regulatory regime: liberal customs duties while recent regulations require overseas retailers to pay Russian VAT Price and convenience are key factors National and Chinese players dominate

Kazakhstan Internet penetration in 2015: 55.5% (2014: 54.9%) 12m people use the Internet 11% of them shop online 83% of orders are settled in cash 6% of orders are paid for by bank cards About 90% of purchases are made at foreign sites Chinese and Russian players dominate

Facts & Advantages Russia

Russia is a major market with 144m inhabitants, of which 74% live in urban areas 77m people are working age (aged 15-72) Good education system with a strong technical/science heritage 100% of population is literate with 95% with at least upper secondary education 950 state and private universities produce 1.2m graduates a year (almost double from 2000) According to OECD, 54% of those aged 25-64 have attained a university degree 13th largest economy in the world measured by GDP in real terms: USD 1,326bn 6th largest economy in the world measured by GDP based on PPP valuation GDP per capita in 2015 at current prices: USD 9,057 (and USD 24,451 based on PPP) Annual progress in World Bank’s ‘Ease of doing business’ ranking: 51st place in 2016 (2015: 62nd)


Significant opportunities offered by the large market

Indicators 2015

Public debt, USD bn* 112

Public debt as a % of GDP 8.5%

Private debt, USD bn 165

Private debt as a % of GDP 12.4%

Human Development Index (HDI) 0.798

Unemployment, % 5.9

Source: Federal State Statistics Service (Rosstat), FocusEconomics, UNDP, Central Bank

*Year-end exchange rates were used.

2.032 2.170 2.231 2.031

1.326

2011 2012 2013 2014 2015

GDP, USD bn

Facts & Advantages Ukraine

Ukraine is a big market with 42.7m inhabitants, of which 70% live in urban areas 23m people are working age (aged 15-70) Good education system with a strong technical/science heritage 100% of population is literate with 94% with at least upper secondary education 439 state and private universities produce ca. 900,000 graduates a year According to the Ukrainian Institute o Demographics and Sociological Research, 76% of those aged 25-64 have attained a university degree 63rd largest economy in the world measured by GDP in real terms: USD 90.6bn 47th largest economy in the world measured by GDP based on PPP valuation GDP per capita in 2015 at current prices: USD 2,115 (and USD 7,916 based on PPP) Annual progress in World Bank’s ‘Ease of doing business’ ranking: 83rd place in 2016 (2015: 96th)


Europe’s #1 IT outsourcing and software development powerhouse

Indicators 2015

Public debt, USD bn 43.4

Public debt as a % of GDP 48%

Private debt, USD bn 75.3

Private debt as a % of GDP 83%


Unemployment, % 9.5

Sources: World Bank, National Bank of Ukraine, minfin.com.ua

163 176 181

132

91

2011 2012 2013 2014 2015

GDP, USD bn

Facts & Advantages Belarus

Belarus is a major market with 9.5m inhabitants, of which 77% live in urban areas 6.7m people are working age (aged 15-72) 99.6% of population is literate with 82% with at least upper secondary education 53 state and private universities produce ca. 420,000 graduates a year According to OECD, 19% of those aged 25-64 have attained a university degree 76th largest economy in the world measured by GDP in real terms: USD 54.6bn GDP per capita in 2015 at current prices: USD 5,741 (and USD 17,661 based on PPP) Annual progress in World Bank’s ‘Ease of doing business’ ranking: 44th place in 2016 (2015: 57th)


Indicators 2015

Public debt, USD bn* 13.1

Public debt as a % of GDP 24%

Private debt, USD bn N/A

Private debt as a % of GDP N/A


Unemployment, % 1%


Source: World Bank, National Statistical Committee of the Republic of Belarus, 2016

Belarus – a bridge between the EU and the EEU

59.7 63.6 73.1 76.1

54.6

2011 2012 2013 2014 2015

GDP, USD bn

Facts & Advantages Kazakhstan

Kazakhstan is a major market with 17m inhabitants, of which 54% live in urban areas 11m people are of working age (aged 15-64) 100% of population is literate with 87% (91% M, 83% F) with at least upper secondary education 146 state and private universities produce 600,000 graduates a year (compared to 400,000 in 2001) According to the CIS Interstate Statistics Committee, 34% of those aged 25-64 have attained a university degree 50th largest economy in the world measured by GDP in real terms: USD 184bn 40th largest economy in the world measured by GDP based on PPP valuation: USD 454bn GDP per capita in 2015 at current prices: USD 10,508 (and USD 25,877 based on PPP) Annual progress in World Bank’s ‘Ease of doing business’ ranking: 41st place in 2016 (2015: 77th)


Kazakhstan – the Central Asian tiger

Indicators 2015

Public debt, USD bn* 26.6

Public debt as a % of GDP 21.6%

Private debt, USD bn 16.4

Private debt as a % of GDP 8.9%


Unemployment, % 5%


Source: World Bank, National Bank of Kazakhstan, WEF Competitiveness Report 2015-16

200 216 244 227

184

2011 2012 2013 2014 2015

GDP, USD bn

8% 7% 14% 8%

41%

22%

62% 71%


Av. retail growth, % Av. online retail growth, %

2.9%

2.4%

1.4%

3.2%


e-commerce: Role in the National Economies


e-commerce is the fastest growing sector in 2013-15

Sources: National Statics Agencies

e-commerce as a % of retail revenues in 2015

Sources: World Bank, National Statics Agencies, various sources mentioned previously

This sector has shown significant growth in all the economies compared to the retail growth trend While retail grew 7%-14% on average in 2013-2015, the pace of e-commerce growth was a factor of 3 to 9 Despite the reduction of GDP growth in the economies of Russia, Ukraine and Belarus, their e-commerce sectors have shown strong double-digit growth on average over the past 3 years – it is the only sector with such performance! It should be considered as an investment target e-commerce is gradually gaining ground in the 4 economies: its turnover as a percentage of retail revenue is still low compared to major European economies It will continue growing as more mobile-connected and Internet-savvy customers get better deals, and are able to access unlimited choice of goods and save time Online retail has shown it is able to adapt to change

368 475 598 706 41

85

211

328

2013 2014 2015 2016F

Domestic sales

Cross-border sales

32%

16%

26% 23%

29% 30%

25% 24%

Jan Feb Mar Apr May Jun Jul Aug

Growth of the e-commerce Markets and Reasons (1)


Growth of quantity of orders from Russian online shops in 2016, % to same month of 2015

Sources: Data Insight, Central Bank

RUSSIA In August 2015, large Russian online shops saw the number of orders go up 7% on July In August 2015, the number of orders went up 24% y-o-y In Summer 2016, the number of orders went up 26% compared to Summer 2015 75% of large online shops show growth 19% of them saw the number of orders DOUBLE compared to August 2015 y-o-y Solid growth of domestic sales. Turnover went up 26% in 2015 and are forecast to grow by another 18% in 2016. While price is the key factor, greater Internet and mobile connectivity, coupled with greater purchase activity in cities with a population of 300,000+ people, drive sales up Remarkable growth of cross-border sales: they went up 148% in 2015 in RUR terms and are expected to grow by another 55% in 2016. Turnover grew on the back of unlimited choice of affordable merchandise offered by Chinese shops and improvements in parcel delivery by Russian Post

Growth of online retail revenues in Russia, RUR bn

Sources: RAEK, Data Insight, Central Bank

29% 26%

18% 107%

148%

55%



UKRAINE e-commerce market in Ukraine has demonstrated strong double-digit growth in UAH terms over the last 3 years Turnover in 2015 went up 25% compared to 2014 Experts believe that the market will continue to grow by another 30%-40% in 2016 Share of e-commerce in retail turnover is forecast to grow to 2.5%-3% Current economic difficulties have pushed consumers to online shops to look for better deals Market places are growing faster than online shops

Growth of online retail revenues in Ukraine, UAH bn

Sources: UADM, Prom.ua

18% 25%

40%

Most popular categories of goods bought online: apparel, household appliances and electronics Consumers spend more on clothes because they can return items they do not like free of charge Increasing internet penetration, mobile connectivity, and availability of 3G, together with more widespread use of bank cards and better logistics are the main factors of the sector’s growth Level of quality of services provided by online shops is growing: more than one-third of large shops have been in business for more than 3 years

17 19

24

34

2013 2014 2015 2016F

86 145

252

544

2013 2014 2015 2016F

BELARUS Again, the local market has shown strong growth in the local currency This trend is expected to continue in 2016 Even in USD terms the market has been growing at a healthy 20% rate Cyber-security is a major concern: using a bank card to pay online is low compared to others People still tend to use the Internet to learn about the product rather than buy it there



Growth of online retail revenues in Kazakhstan, KZT bn

Sources: Oanda.com, National Bank of Kazakhstan

KAZAKHSTAN Kazakhstan’s e-commerce sector has grown in KZT terms showing an average 71% growth rate Market participants forecast it more than doubling in KZT terms in 2016 Measured in USD, the market has been going from strength to strength with about 40% up every year

Growth of online retail revenues in Belarus, BYH bn

*Calculated at the year-to-date average exchange rate before currency re-denomination in July 2016.

Sources: National Bank of Belarus, EComCharge, bepaid.by

38% 85%

52%

68% 74%

116%

3,107 4,291

7,933

12,077

2013 2014 2015 2016F*

Growth of Cross-Border Sales (1)


70%

55%

Prices and choice are key: cross-border sales in Russia, USD m

Sources: Data Insight

Categories of goods in 2015, %

Sources: AICT

Cross-border market leaders in 2015, %

Sources: RBC.Market Research

RUSSIA Significant growth of the cross-border segment of the Russian e-commerce market 2 categories (clothing and footwear, and household appliances and electronics) account for more than two-thirds of the demand Average value of goods per parcel was USD 25 China’s Alibaba Group dominates the market with a 55% share 80% of deliveries come from China

1,300

2,200

3,400

2013 2014 2015

35%

32%

7%

7%

3% 3%

13% Clothing & footwear

Electronics & householdappliancesCosmetics & perfumes

Car parts

Home items

Sports

Other

55%

26%

19%

Alibaba Group

eBay

Other

KAZAKHSTAN 90% of purchases made by online shoppers in Kazakhstan are made in foreign shops This leads to an assumption that the cross-border segment determines the market overall (ca. 40% growth in USD terms) Foreign retailers lead with a 87% market share Apparel & footwear account for 80% of purchases

Growth of Cross-Border Sales (2)


-44% -17%

Cross-border sales in Ukraine, USD m

Sources: National Bank of Ukraine

UKRAINE Cross-border activity in Ukraine’s e-commerce market has been declining over the last 3 years UAH devaluation was the main factor Domestic sales drive the sector’s growth 90% of items bought overseas were apparel & footwear, smartphones, laptops and tablets

Cross-border market leaders in Kazakhstan in 2015, %

Source: akib.kz

1,078

600 499

2013 2014 2015

35%

18% 13%

14%

7%

13%

Lamoda (RU)

OTTO (DE)

Wildberries (RU)

AliExpress (CN)

KupiVip (RU)

Other

Market Specifics (1) – Delivery Options


Delivery options, % of total

National postal service providers are still leaders of their respective markets, except for Kazakhstan They have all worked recently on improving historically underdeveloped service offerings However, their share of the market has been eroded by various couriers

Ukraine is worth noting especially because it is the only one where a single privately owned provider (Nova Poshta) has been able to claim almost a third of the market, and the gap with the incumbent is narrowing Self pick-up is still a major way of delivery, especially in Kazakhstan and Russia. Some online retailers are investing in pick-up points

Sources: AITC, Ukrainian direct marketing association, Data Insight, Satu.kz

Note: By ‘National Post’ we mean national providers of postal services owned by the respective national government: Russian Post in Russia, UkrPoshta in Ukraine, Belpochta in Belarus and KazPost in Kazakhstan

27%

10%

29%

42%

51%

40%

8%

10%

17%

50%

53%

15%

31%

27%

10%

6%

1%

Kazakhstan

Belarus

Ukraine

Russia

National Post

Pick-up by self

Various couriers

Major private postal network

Other

Market Specifics (2) – Payment Options


Payment options, % of total

Sources: PwC, Ukrainian direct marketing association, Data Insight, Satu.kz

Until recently cash was the most preferred, or indeed available, type of payment in all the countries Consumers were not enthusiastic about virtual money several years ago Banks and general public alike were concerned with cyber-security and fraud The financial industry has worked hard to address this lack of trust by implementing new policies and technologies

As a result, more online shoppers use cards now National governments (e.g., Ukraine and Belarus) have recently adopted laws to encourage individuals to use credit/debit cards and push vendors and banks to accept payments in virtual money

6%

15%

20%

31%

83%

60%

70%

52%

2%

4%

10%

8%

2%

2%

1%

19%

10%

5%

Kazakhstan

Belarus

Ukraine

Russia

Bank cards

Cash

Web money

Terminals

Other

Major Players – Russia


USD 2.0bn Appliances & electronics

USD 0.7bn Apparel & footwear

USD 277m Car parts

USD 4.1bn Multiline

USD 149m Food

USD 114m Construction materials USD 69m

Books USD 64m

Electric tools USD 64m

Mobiles USD 61m

Sports

USD 206m Home & office

Sources: Data Insight, Ruward

Major Players – Ukraine


USD 500m Appliances & electronics

USD 107m* Apparel & footwear

Source: Ukrainian direct marketing association, GfK

N/A* Multiline

* Note: Segment turnover excluding OTTO, Wildberries, KupiVip and AliExpress for which no detailed financial information is available

Major Players – Belarus


3.5% of users Food

25% of users Multiline 14% of users

Appliances & electronics

4.5% of users Books

Source: gemiusAudience

20% of users Apparel & footwear

Major Players – Kazakhstan


USD 27m Multiline

Source: Forbes Kazakhstan, The largest Internet companies of Kazakhstan

USD 122m Apparel & footwear

USD 50m Appliances & electronics

KAZAKHSTAN Taxation of personal orders received from abroad:

• No customs taxes are paid if orders do not exceed USD 1,000 in value per month per one recipient, and frequent purchases are monitored

Regulatory Environment (1)

RUSSIA New law impacting cross-border e-commerce (adopted in June 2016):

• VAT implications for foreign suppliers of e-services to Russian customers (B2B and B2C)

• Digital products and services provided by foreign suppliers to Russian consumers (B2C business) will be subject to VAT in Russia

• Foreign suppliers are obliged to be registered for VAT purposes, submit VAT returns and pay VAT to the Russian tax authorities

• A special rate of 15.25% will be applied • Failure to comply will lead to penalties and

temporary inability to sell in Russia • Effective on 1 January 2017

Taxation of personal orders received from abroad:

• No customs taxes are paid if orders do not exceed 31kg in weight and EUR 1,000 in value per month per one recipient

UKRAINE New e-commerce law (adopted in September 2015):

• Sets the rules for concluding contracts in electronic form during online transactions, including electronic signature

• Confirms the application of Ukrainian consumer protection regulations to such transactions

• Settlements may be carried out by applying various payment instruments, electronic money, transfer of funds, provision of cash and by other means

Taxation of personal orders received from abroad:

• Tax on parcels with value in excess of EUR 150 is reduced to 32% of value in excess effective 1 March 2016

22 accounting | ERP | import | legal | tax

Regulatory Environment (2)

BELARUS Taxation of personal orders received from abroad:

• No customs taxes are paid if orders do not exceed 10kg in weight and EUR 22 in value per month per one recipient

Amendments to the BY Tax Code impacting cross-border e-commerce (effective since January 2018):

• VAT implications for foreign suppliers of e-services to BY customers (B2B and B2C)

• Digital products and services provided by foreign suppliers to BY consumers (B2C business) will be subject to the BY VAT at 20%

• Foreign suppliers should be registered for VAT purposes, submit VAT returns and pay VAT to the BY tax authorities

Government Decree dated 19 June 2016 #517:

• E-commerce vendors should offer at least one method of remote payment

• Paying with a bank card is the mandatory method which should be available


SCHNEIDER GROUP e-commerce solution (1)

24

Russia

accounting | ERP | import | legal | tax

SCHNEIDER GROUP offers an ALL-IN-ONE service for your online shop in Russia and the entire Eurasian Economic Union (EAEU) We support you with import, customs clearance and the distribution of your products in the EAEU, without the need of registering a company or recruiting staff Thus, you get an entire and transparent distribution infrastructure, in which SCHNEIDER GROUP manages the orders as well as client payments, and takes care of all logistic processes including delivery to the client

SCHNEIDER GROUP e-commerce solution (2)

“Step-by-Step assistance for market expansion to Russia”

i. Cross-border sales

ii. Import and sales via SCHNEIDER GROUP Trade

iii. Import and sales via your own entity in Russia


Please ask for an extended version of this Industry Insights report to obtain further details of our e-commerce Solution

Other Services

As described above, we offer an all-in-one service for your online shop in Russia and the entire Eurasian Economic Union (EAEU)

In addition, we provide services in such areas as: • Market research/ business partner search • Company registration • Tax and legal • Interim management • Import • Accounting outsourcing • Information Technology



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Vladimir Kazakov Market Research Director [email protected]

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