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Russia’s domestic e-commerce market booms with sales up 32%, while a developing EU-US market providing access to Russian consumers is emerging via EAEU resellers.

Russia’s cross-border e-commerce trade decreased by 30-35% in April compared to the same period in 2021, according to Russia’s Ministry of Economic Development. The fall was influenced by fluctuations in the ruble exchange rate and payment problems due to sanctions. However, this is being offset by tax threshold increases, EAEU regulatory changes, and the development of a third-party re-sale industry as markets adapt.

Russian Cross Border E-Commerce

The Russian Association of Internet Trade Companies (AKIT) estimated the year-on-year reduction at 51% and noted that the clothing and footwear category retrenched in volume more than other sectors.

The Ministry of Economics however believes that the products from the EAEU states will replace some of the foreign goods that have left the market. The EAEU is a Free Trade Bloc that includes Armenia, Belarus, Kazakhstan, and Kyrgyzstan in addition to Russia, while also having Free Trade Agreements with Iran, Serbia, and Vietnam. Of greater interest perhaps is the latent potential – the EAEU is negotiating FTA with Egypt, India, Indonesia, Thailand, and numerous other countries. This will affect the global make up of Russian E-Commerce consumerism in coming years with the emphasis on Central and South-East Asia.

The EAEU has already started developing the regulatory framework necessary for this expansion in E-Commerce trade.

April’s decrease of 51% means a drop of 11.7 billion rubles, or about US$191 million for the month over the same period in 2021.

However, the Ministry of Economic Development considers the AKIT data to be overestimated . They note that the drop in cross-border e-commerce will be about 30-35% year-on-year . According to the ministry, the severe April decline has now slowed down, and added that the reduction did not significantly affect the budget, since customs payments were already made only when the duty-free threshold was exceeded. To a greater extent, the fall was reflected in the companies involved in supply chains rather than having any Russian fiscal impact. In other words, trade sanctions hit the traders, not the Government.

To counterbalance this, in April, the Council of the Eurasian Economic Commission (EEC) increased the threshold for duty-free importation of imported goods for personal use within the EAEU from €500 to €1,000. It is assumed that these measures will support citizens under sanctions pressure and avoid a shortage of essential goods, and as well as critical imports.

The Ministry of Economics also expects that Russian consumers will gravitate to the products of the countries of the Eurasian Economic Union, and these will replace especially the non-branded goods that have left the market . For the development of electronic commerce between the member states of the EAEU, work is underway to improve the regulatory framework, the Ministry said. At the moment, this is primarily about Russian manufacturers and online retailers accessing EAEU markets, although Russia is by far the largest EAEU consumer and supplying Russian consumers is a huge incentive for other EAEU based traders.

Vahagn Kazaryan, director of the EAEU’s customs-tariff and non-tariff regulation department has stated that there are significant opportunities for all EAEU businesses to look at the E-Commerce market and to adapt to it, although he acknowledged some sales forecast issues due to the lack of clarity in logistics and banking operations.

The fall in the turnover of cross-border online commerce was also noted by Russia’s Postal services, who also recorded a decrease in the volume of both incoming and outgoing international mail. Russia Post said that there is a possibility of postal exchange with almost all countries, but at the same time advised that delivery times have increased.

For example, in February, EMS parcels (delivered by courier) and small packages from Russia to the country of destination were delivered in a maximum of 8-10 days, but this had declined in April to over two weeks.

However, in cross-border traffic, the share of shipments from Chinese marketplaces has increased, including those processed through Mail Forwarding platforms, which deliver goods not directly to Russia, but through intermediaries.

The turnover of cross-border e-commerce has fallen in almost all categories, according to AKIT as follows:

Clothing and Footwear: -92%

Beauty and Health: -39%,

Furniture and Home Goods:  -31%

Auto Parts: -25%

Digital and Home Appliances: -19%

The Digital and Home Applicance sector accounted for the largest sales volume in cross-border online commerce – just over 6 billion rubles (US$98 million) in 2021.

Russian Domestic E-Commerce

There is far better news domestically. According to AKIT, the total intra-Russian online turnover in April reached 361.4 billion rubles, (US$5.9 billion) an increase of 32% compared to the same period in 2021. The purchase volume in the domestic market increased by 40% year-on-year to 349.7 billion rubles. The growth was driven mainly by seasonal demand for gardening equipment and tools, which saw a 235% increase in sales. This means that the EU sanctions imposed upon Russia have turned men and women back to their agricultural plots and summer Dachas in case of any imported food shortages. One can expect a busy and productive summer for Russia’s Babushka’s, growing, harvesting, cooking and bottling.

According to ACIT, the largest foreign online stores in 2021 were as follows:

AliExpress: 201.1 billion rubles (US$3.3 billion)

Asos: 67.2 billion rubles (US$1.1 billion)

Ebay 40 billion rubles (653 million)

From March 2022, most foreign sites – but not China’s AliExpress – stopped working in Russia. As a result, the turnover of the cross-border online market began to fall.

Sanctions have also made logistics and payment operations complicated, and there are still difficulties with paying for goods on non-Russian e-commerce sites.

Options are the development of Internet commerce in the EAEU space, although today there are still issues such as double taxation and the current lack of integration of national payment systems, although it can be expected that these can be resolved by the year end.

Accessing EU Markets? A Developing Third-Party Resale Industry

That is likely to mean an EAEU reseller market appears. These countries are not subject to SWIFT or logistics sanctions, and savvy online retailers can purchase European and American goods, for consumers in Russia. This means the developing of schemes that will allow delivery to Russia through the EAEU and other countries as they begin to enter into Russia and EAEU Free Trade Agreements.