beyondbrics

Venture capitalists have long been touting Russia as the undiscovered market for e-commerce. While the postal system is notoriously bad and Russians have been reluctant to embrace online payments, investors argue that the market simply needs to be consolidated for homegrown versions of Amazon.com to enjoy the success of their western counterparts.

The leader of this consolidation appears to be Ozon.ru – the online book, music and vido seller – which on Wednesday announced it would be acquiring Sapato.ru, a dot-com shoe retailer.

Sapato is being sold by Fast Lane Ventures, a developer of Russian internet companies that functions as a sort of incubator for start-ups.  Basing its business on the principle that a site that has been successful in the west will also be successful in Russia, Fast Lane helps entrepreneurs develop Russian businesses that can be sold off in three to five years. (Sapato, the first business to be spun off, was sold in 18 months.)

“18 months ago, 20 months ago, everyone was telling me it was simply not possible to sell shoes by internet,” says Marina Treshchova, Fast Lane’s chief executive. “In fact we actually managed to sell it to one of the best known companies in the internet sector.”

The deal appears to make sense for Ozon, as the site has been looking to expand outside the book, video and music business, says Jean Kaplan, an emerging markets technology analyst at HSBC in London.

While Ozon already does sell clothing and shoes, it has been less successful in the market than Sapato, for instance, which registers 2.5m visitors per month.

Sapato will give Ozon both a customer book and expertise on how to sell not just electronics, but clothing, Kaplan says. In return, Ozon can actually make Sapato – or any other individual site – more efficient by utilising its existent infrastructure to help the company transport goods cheaper and faster.

“Ozon has set up shipping capabilities to help them deal with their growing business,” Kaplan says. “This gives them opportunities to go out and figure out what other e-commerce companies they can add to their portfolio which would benefit from their shipping capabilities. And they can find companies that woud be worth more working together with Ozon or being owned by Ozon than they would be standalone.”

If Sapato is the model for what e-commerce will look like in Russia, the picture is still a rough sketch. Though Treshchova says that 65 per cent of the site’s business comes from outside Moscow and St Petersburg (where selection in traditional malls and stores is usually more limited), the service of delivery differs widely by your location. While a Moscow online shopper can have a courrier deliver seven pairs of shoes (and immediately hand the courrier back the six pairs that don’t work), shoppers in the regions must rely on the snail-speed of Russia’s sometimes unreliable postal system.

For Russian e-commerce business, goods’ ‘returnability’ will likely prove one of the biggest obstacles, Kaplan says.

“The reason I can go on Amazon in New York and London and be completely comfortable ordering absolutely anything is because I know that I will have no problems returning it… and that it will get here.”

While Ozon has succesfully conquered the Russian online book business, it may have a harder time in the shoes and clothing department where customers are not always sure what they are getting, he adds.

“When you buy a book you know what you’re buying. With a pair of shoes it’s a tougher sell. There’s a very high chance you’re going to want to return them.”

Related reading:
Russian internet front, FT
Ozon positions for Russian e-commerce boom with $100m funding, FT Tech Hub
Welcome to Russia’s Silicon Valley, FT