Bakalchuk vs Bezos: where Wildberries will compete with Amazon
The Russian e-commerce giant looks like it is about to conquer Poland. What awaits Wildberries? Competition with global players, the fight for a fast-growing market of more than $11 billion and potential access to users of all EU countries
Russia’s largest online retailer Wildberries may enter the Polish market as early as the summer of 2019, the Kommersant newspaper reported on March 13. Journalists learned about the plans of the European expansion of the company Tatyana Bakalchuk thanks to a leak: on the portal of small and medium-sized businesses of the Kirov region at the end of February there was posted a certificate for registration on the website of suppliers Wildberries. In particular, the document stated that the online retailer “allows businesses to … enter international markets (at the moment it is the EAEC countries and Poland). Forbes has looked into whether the company is really going to conquer Europe and what awaits the Russian player in the Polish market?
Is it certain that the entry to Poland will take place?
Since the source of the news was a document accidentally leaked to the public, the traditionally secretive Wildberries hastened to refute the rumors. “The information leaked after an internal mailing of the Ministry of Industry and Trade in the database of potential suppliers, which we wanted to attract to cooperation,” – told Forbes a source close to the company. The news is extremely premature – the leadership has no “clear decision on the entry into a particular market, Poland – only one option,” he stressed.
However, one of the major Russian suppliers of Wildberries on condition of anonymity also confirmed to Forbes that the online retailer is planning European expansion from Poland.
Wildberries does not deny its interest in the EU market. And it has even begun to prepare the ground for expansion into Europe. According to the portal domaintools.com, LLC Wildberries from the village of Milkovo near Moscow (the retailer’s registered address) has about 40 domain names in various zones. These include .eu (Europe), .es (Spain), .be (Belgium), .ch (Switzerland) and .cz (Czech Republic). Domains were registered at different times: for example, the Spanish site was created in February 2018 and the Czech site in January 2019. This is common practice for many companies, assures a representative of Wildberries: “For example, last week Sberbank registered 200 domains with the prefix sber. However, the retailer’s international address – Wildberries.com – turned out to be occupied by a marketplace selling food products in California. The Polish .pl domain, created almost simultaneously with the Spanish one, is also occupied, but there is no information about its owner.
Why does e-commerce love Poland?
Polish e-commerce is an attractive market for any major player due to high growth rates: according to a research by export.gov, between 2017 and 2020, the volume of online commerce in the country will grow by more than 50%, from $11.1 billion to $17 billion. Experts attribute such dynamics to low prices for high-speed Internet (about 28 million of the almost 38 million people visit the network) and the rapid development of local marketplaces. Polish companies – Allegro, Ceneo, RTV Euro and Mediaexport – have four positions in the top five largest market players. Another factor in favor of the development of e-commerce is the conservative ban on offline trade on Sundays and official holidays.
If Wildberries in Poland will start with sales of clothing (70% of the retailer’s assortment), as it was in Russia, then it will have to compete with the large German online retailer Zalando, reminds a representative of Wildberries’ competitor in the Russian market – the online store Lamoda. Zalando though appeared on the market later than Amazon, according to export.gov, is the fifth of all e-commerce companies in Poland and the leader in terms of sales in the fashion category in Europe (with annual revenues of € 4.5 billion).
Large players in the Polish clothing retail industry also compete for a share in online commerce – for example, LPP group (Reserved, Cropp, House, Mohito, Sinsay brands), whose revenue in 2017 was about €1.7 billion. “Every Pole knows these brands and would prefer them to Western brands”, says a representative of the Russian division of LPP about the competitive advantages of its portfolio. In the third quarter of 2018, LPP tripled the volume of online sales. Their share in the group’s revenue structure approached 7.5%, which is about €465 million. In Russia, LPP brands were previously sold on the Wildberries platform, but after the launch of its own online sales in the country, the Polish group refused to cooperate so as not to create competition for its own online stores. Overall, the Russian market accounts for 18% of LPP’s sales, which amounts to more than $300 million. By comparison, Wildberries’ revenues in 2018 were $1.7 billion.
What awaits Wildberries in Poland?
The Russian marketplace can be a worthy competitor in Poland, says Mikhail Urzhumtsev, CEO of Melon Fashion Group, in an interview with Forbes. He himself tried his hand at the local market in 2017, opening several mono-brand offline stores, Zarina, Befree, and Love Republic, in Warsaw and the suburbs. But the business didn’t pay off. “The Polish market is considered one of the toughest in Europe, retail prices here are 20-25% lower than in Russia, although the cost level remains at the same level,” Urzhumtsev explains.
For Kommersant, Mikhail Burmistrov, CEO of Infoline-Analytics, estimated Wildberries’ initial investment for the launch in Poland at €5 million. Forbes’ source on the ecommerce market believes the estimate is an underestimate: according to his calculations, the amount should be “several times higher”. “The main difficulty for Wildberries in the European market is setting up all the processes in accordance with EU legislation and requirements. Employees’ salaries, the social package, the proper condition of workspaces, and transparent sources of supply require enormous expertise and financial resources,” Forbes’ interlocutor argues.
Skepticism is not shared by one of Wildberries’ major distributors. On condition of anonymity, he listed factors that should help the company cope with the challenge – “a strong position in Russia, great expertise, and a good financial cushion.
Entering Europe will not be Wildberries’ first experience abroad: in addition to Russia, the online retailer operates in Kazakhstan, Belarus, Kyrgyzstan and Armenia. “I know that they always enter new markets carefully, they have this scheme worked out in Russia – during the expansion from Moscow to Vladivostok,” continues Urzhumtsev of Melon Fashion Group, well acquainted with Tatiana Bakalchuk and her husband Vladislav.
In Europe, the distances are not as great as in Russia, and logistics “works like clockwork – enough to have a warehouse in Poland to serve the entire EU and a day to deliver in any country”, says one of the interlocutors Forbes with experience in business development in the European Union. But in order to build the same infrastructure as in Russia, Wildberries needs huge warehouses, logistics, delivery, and distribution points – until the company “gets a feel for the market”, it will probably deliver goods to European customers from Russia, concludes Forbes’ source.