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Expansion of Wildberries Opens New Markets for Hong Kong Exporters

Move by Russia's largest online marketplace into former Soviet bloc represents cost-effective new sales channel.

Photo: Belarus-bound: One of Wildberries growing number of extra-Russian pickup points.
Belarus-bound: One of Wildberries growing number of extra-Russian pickup points.
Photo: Belarus-bound: One of Wildberries growing number of extra-Russian pickup points.
Belarus-bound: One of Wildberries growing number of extra-Russian pickup points.

Wildberries, Russia's largest online marketplace, has seen an 80% year-on-year surge in sales for the period January to June this year, taking its total revenue for the first six months of 2019 to US$ 1.2 billion. While this is partly due to its introduction of several new product categories, it's largely down to its successful expansion across much of the territory that once constituted the Soviet Union.

In particular, it's down to the substantial increase in its number of pick-up points. Not only has it expanded its Russian network, but it has also established collection points in many of the neighbouring countries, while having particular success in the Transcaucasian region, with impressive penetration into both Azerbaijan and Armenia. All of these new markets are believed to have responded positively to the arrival of the Russian e-commerce giant, while proving ready buyers of its recently expanded range of consumer electronics and household electric appliances, office equipment, stationery and food and drink.

Founded in Moscow in 2003 by Tatyana and Vladislav Bakalchuk, a married couple, Wildberries initially offered a limited selection of clothing, footwear, costume jewellery, accessories and household appliances. At the time, it was something of a pioneer of the online-to-offline (O2O) model, with purchasers able to personally collect – and, crucially, test – items ordered from the site. Subsequently, such an arrangement has become pretty much the norm for all Russia's major e-commerce operators.

Following a number of years of sustained growth, in early 2018 it began a major expansion of its network of collection points. The addition of 500 sites took its total to 1,500, with 1,400 of these dotted across Russia and the remainder divided between Belarus, Kyrgyzstan and Kazakhstan. With expansion continuing throughout 2018 and the first half of this year, it now has 4,700 collection points, many sited beyond its home territory. This expanded network also has the facility to handle an expanded range of goods, including DIY products, office consumables, computer components / peripherals, cosmetics, personal-care items, pet supplies and an expanded food range.

According to the company, each new collection point costs about $166,000 to open, including all legal fees and full refurbishment. Typically, the interval between signing an agreement with a site owner and a collection point opening for business is four weeks.

It's an outlay that's clearly worth it for the company, with the extended network having delivered sales growth in nearly every category. Heading the list are consumer electronics and food / beverages, with sales up 600% year-on-year for January to June 2019 in both categories, followed by office equipment and supplies (580%), and pet products / food (400%). In total, in the first half of this year, the site's overall number of orders doubled compared with 2018, while the number of individual customers was up by 85%.

In terms of the primary target for expansion, Azerbaijan topped the company's list, largely as it's the third-largest e-commerce market in the Commonwealth of Independent States (CIS), after Russia and Ukraine. Overall, the CIS e-commerce market is now estimated to be worth some $10 billion, with many of its poorer members, perhaps counterintuitively, exhibiting a higher per-capital level of online spending, a phenomenon that has also been noted within Russia on a regional basis. It's believed that this reflects the greater need of less well-off consumers to find keener prices. In terms of further expansion, Wildberries, as with other Russian companies, will struggle to make inroads into the Baltic States – Latvia, Lithuania and Estonia – as their EU membership status makes any prospective imports subject to more stringent customs regulations and higher tariffs.

For Hong Kong manufacturers and distributors, Wildberries' successful expansion makes a number of the more difficult to access markets – notably those in Central Asia and in the Transcaucasian region – far more viable. This is especially true given the all-in-one transaction processing, fulfilment and after-sales support packages on offer.

In particular, it's worth reviewing the opportunities emerging in Armenia, Georgia, Kyrgyzstan, Tajikistan and Uzbekistan, markets that have previously been viewed as marginal at best. While the comparatively low level of their GDPs might appear off-putting, the high level of remittances that feed into their economies from Russia and Western Europe adds considerably to disposable income levels and has also fuelled a somewhat cosmopolitan appetite for overseas consumer goods on the part of many local residents.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
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