Ozon IPO perks up Russian e-commerce sector

The Russian e-commerce market sprang back into life this week, with one of its oldest and largest players Ozon announcing it was aiming to raise $500m through an IPO in the US. Further evidence that the new breed of Russian on-line retailers led by Yandex and Mail.ru were turning up the heat on their rivals surfaced last month when X5, Russian largest’s retailer signalled its intention exponentially increase its number of on-line customers in an attempt to stave off competition.
Despite being overshadowed by the phenomenal success of Alibaba over the past few years and by the drama surrounding its founder Jack Ma’s run-in with Beijing over Ant Group‘s IPO, the Russian e-commerce market is very much recording a 13% growth rate in the 2019 calendar year.Russian with cash Low consumer trust, a preference for cash payments and a lack of efficient or reliability options – exacerbated by the vast distances between its conurbation – meant that the Russian e-commerce market got off to a relatively slow start. Although recent growth was partly by driven by millennials in St Petersburg and Moscow, the isolating effects of the Covid-19  pandemic also accelerated  its growth and boosted penetration among sceptical older consumers and outside luxury clusters of the main two cities. Last year, the total Russian e-commerce market turned over $20bn, making it the 12th largest in the world (ahead of Spain and just behind Indonesia).
Launched back in 1998 and like Amazon before it, Ozon started life as an online book store. Since then it has (again like Amazon) diversified not just into ‘zero gravity’ sectors such as Ozone Travel and its Litres digital books operations, but now also uses its website to sell everything from fashion and toys to DIY and electronics.
Perhaps critically, given the spread of Russian e-commerce’s popularity across the country’s 11 time zones, it also invested in its own Fedex-style delivery operation. Earlier this year, it also launched a logistics management platform to help utilize its delivery services  most effectively during times of peak demand. Ozon is also said to be considering listing Moscow stock exchange at the same time as or shortly after its planned US IPO

X5 chairman Igor ShekhtermanX5’s new investment strategy, by contrast, is perhaps more of a defensive one and reflects its concern at the growing encroachment of incumbent Russian e-commerce players into traditional retail. “You can call it an ecosystem or not, but we are going to use it to create services that will help us attract more customers, follow them each step of the way, and monetise them as much as we can,” X5 chairman Igor Shekhterman said at the launch of Okolo, X5’s new express delivery service in July. “What we don’t want to be is part of someone else’s ecosystem and lose part of our margins while giving away customer interaction. The reason we’re doing all this is to lower our costs, and the costs we lower are additional investments in the customer.”

Like its tech rivals, X5 is also planning to cherry-pick from the Amazon success story by using a new unified login to create a future loyalty service similar to  Amazon Prime. Jeff Bezos’s shadow, it seems, stretches all the way to Vladivostock.