Let's go buy bread online!

17.11.2010 — Analysis

Russian shoppers are eyeing virtual shop windows with great interest, considering their promise to save time, money, and stress. According to the Data Insight agency, the volume of e-commerce in Russia will reach 240 billion rubles in 2010. However, this is only a tiny fraction of retail trade. Internet sales comprise less than 2% of total sales in Russia - these numbers are 3½ to 4 times as high in the US and EU. Most online shopping in Russia is done in Moscow and St. Petersburg - Ekaterinburg has only a quarter or a fifth of St. Petersburg's Internet market. Given that e-trade in Russia is expected to increase by 250% in the next five years, this correspondent for RusBusinessNews tried to get a handle on Ekaterinburg's future in a conversation with the city's deputy mayor, Viktor Konteev.

- Let me start by asking, what percentage of total retail sales in Ekaterinburg are made online?

Since this market hasn't been studied in depth, it's difficult to talk about specific numbers, but I don't think it's more than 5% of total retail sales, while in Moscow as much as 15% of all purchases are made online. Nonetheless, this market that only started in Ekaterinburg in 1995 is now picking up speed. Even in 2009's difficult economy, online sales increased by 7%. According to research done by owners of online stores, 25% of our population at least browses through Internet shops. As of today, 382 e-stores have found their niche. The number of retailers trying to break into the online market increased by 250% just in the last year.

- Why do you think online stores have been so slow to take hold? Not enough promotion? Shoppers' distrust and entrenched habits? Or is it that people in Ekaterinburg haven't yet fully incorporated the Internet into their lives?

There are about 800,000 Internet users in the city. Our surveys show that 97% of respondents are aware that they can make purchases over the Internet, but only 57% of them do. A third of those questioned do not think online shopping is safe, one-tenth see no need for it, and 3% have no opportunity to do so.

- What types of goods do people in Ekaterinburg like to buy online? Books were the first items in our country that were made available through virtual stores. A book is a book - you don't have to try to guess whether you are buying something of good quality or not. Slowly people began buying household appliances, and now clothes and shoes are becoming popular online purchases...

More than anything else people go on the Web to buy things for their children. There are over forty of these online shops who have good prices, selection, and customer service. Virtual stores are also good resources for high-tech products, and spare parts for cars are frequently sold over the Internet, as well. But grocery stores have found it harder to embrace this new technology. Shoppers don't yet trust "virtual" merchants, fearing that they will be cheated. It's remarkable that despite this, online sources for buying food and drink have been gaining ground - their numbers have increased by 50% in the last year. Among the newcomers to the Web are online stores for intimate products and plumbing supplies.

- What still needs to be done to expand Internet shopping?

Our task is to promote sales of local food products on the Internet. Khladokombinat No. 3, Smak, and Ekaterinburgsky Zhirkombinat have gained an online following and those stores are helping local people overcome their distrust of virtual grocery stores.

We began systematically looking into the issue of online sales less than a year ago. There's no question that we currently lag far behind Moscow and St. Petersburg. But we've set ourselves some serious objectives and if we can achieve them, it will really stimulate Internet trade. The more "mature" business community has to join efforts and create a non-commercial partnership. The owners of online stores themselves took the initiative, because they needed government backing and the support of colleagues.

Right now there is still an insufficiently developed legal framework to regulate the most important elements of e-commerce. The federal Law on Trade, which went into effect in early 2010, mainly affects the food industry. Now we need laws regulating other areas. In order for online trade to develop, we need to be clear about what providers are responsible for and to take the nuances of outsourcing into account. Owners of online stores gave the Ekaterinburg government a list of the most urgent problems: finding affordable warehouse and office space and solving transportation problems. We're helping them as much as we can. Currently, we're trying to identify the largest deficiencies in the legislation and then we'll give these suggestions to the Russian Ministry of Industry.

- What kind of future do you see for brick-and-mortar retailers? Do you think it's possible that eventually only discount stores and upscale boutiques might be left, while the middle segment moves over to the virtual realm?

There will always be customers for brick-and-mortar stores. Right now over 1,000 retail chains operate in Ekaterinburg (meaning two or more stores operating under the same name). Their sales increased by 12% in 2010. They usually make half of their yearly income in the month before New Year's. Of course, online stores aren't yet up to such an achievement - they see no more than a 15% seasonal increase in sales. Chain stores are becoming aware of the advantages of Internet sales and are offering customers the opportunity to make purchases on the Web. One of the most popular ways to expand sales is through consumer credit, which opens up new opportunities for both merchants and shoppers.

- Is it possible that this will give some leverage to brick-and-mortar merchants, since their virtual colleagues can't yet offer buyers goods on credit?

That's certainly true at the moment. It's possible that in the future shoppers will be able to buy on credit online, but right now e-merchants are busy solving higher-priority problems.

- Have online shoppers registered any complaints?

A few. In all this time only four consumers have come to us because they were dissatisfied with the quality or delivery of their goods. And the sellers immediately replaced the products that did not meet the buyers' demands. The small number of complaints indicates that online sales have been well organized. Back when shoe stores were multiplying in Ekaterinburg like mushrooms after the rain, we had irate customers knocking down our door. But we haven't experienced such an onslaught of dissatisfaction during the explosion of e-commerce. Owners of online stores come from a good business school - they all have experience in "real" commerce. They understand the nuances of doing business and know how to treat a customer.

- And one last question - Do you ever shop in online stores yourself?

To be honest, I've never had to... We usually have a family outing to a shopping center once a week and the rest of time there's just no time to think about shopping - work is so busy. But you've made me think maybe I should try it.

This interview was conducted by Lyudmila Maslova