From Russia, With Luxury (Retail)

Depending on one’s age and nationality, the word “Russia” will conjure any number of images.

Some beautiful.

Some terrifying.

And others are just merely strange.

But while these and any other number of onion-domed visions will dance around our collective consciousnesses when we think of Russia, almost none of our visions will be of a nation of dedicated consumers looking to score luxury items online.

Up until now, eCommerce growth in Russia has been slower than expected given the nation’s size, economic development and technological sophistication. Only about 2 percent of Russian retail transactions per year occur online – compared to 6 to 8 percent in the U.S.

That fact is, in part, explained by Russian consumers’ extreme preference for the use of cash in all retail transactions. According to SPSR (the nation’s leading delivery service), Russian consumers, even when they buy online, are still paying with cash nearly 70 percent of the time. Cards are only used upfront online 10 percent of the time and 4 percent of the time when swiped via courier upon receipt of goods.

Given the reliance of most digital commerce on cards – it’s unsurprising that up until now eCommerce growth in Russia has been rather slow. A number of new developments suggest that is because things are starting to change as the pace of growth shows promising signs of picking up. Russia currently ranks 5th in the world for eCommerce growth and some analysts are predicting that the value of the Russian marketplace will swell to $38 billion a year by 2018. Not bad for a country that looks massive on a map but has a population of about 100 million people.

And that is drawing increasing attention to the area, from players big and small – all trying to find the best way to get shoppers tuned into shopping from a screen.

One of those players is Aizel – a luxury bricks-and-mortar retailer that is a stone’s throw from the Kremlin for the last decade. But now they are moving online and hoping to not only expand their business, but also change the way Russian consumers hunt for luxury on the Web.

“There are two trends we have taken for making the decision to cover this segment,” Aizel’s GM Yuliana Gordon told MPD CEO Karen Webster in a recent interview. “First of all the market itself in Russia is growing 41 percent year to year. There are 12 million Russian customers buying goods online. This is not all luxury brands — this is mass market brands.  But we estimate that about 10 percent of those 12 million customers are buying luxury online, and this is growing year over year.”

Plus, Gordon noted, Aizel is a real world brand that sees a lot of pent up demand for consumers who are looking for a wide array of luxury goods — and just not finding ways to satisfy that demand. Russia is the physically largest nation on Earth at 6.6 million square miles. Moscow is about 970 square miles in the extreme West of the nation – meaning many, many consumers are far, far away from real world boutiques.

“Russian consumers are ready to buy luxury goods online,” Gordon told Webster. “In Russian eCommerce there are not enough luxury shops, so we have customers, but we don’t have [online] portals for them.”

And the portals that exist — international luxury retailers that accommodate a cross-border buyer from Russia — do exist, but Gordon told Webster they have limited appeal to consumers.

“If a consumer buys online from one of those sites, they are paying more – taxes, duty fees, shipping, etc. In Russia we can provide a better price, especially on goods over $1,000, and with high-end goods, price is going to make a big difference.”

But more important, Gordon told Webster, Aizel is willing to meet Russian consumers where they are and how they like to pay. Aizel takes all the payment methods that most of us would be familiar with – credit, debit, PayPal – but they also accept something most American consumers haven’t seen in well over 30 years – cash on delivery.

“In Russia, eCommerce is overwhelmingly done by cash, it is not prepayment. When you buy online abroad it is all prepayment. This is a big limitation for Russian consumers; we provide cash on delivery and that is a major selling point. We also have couriers that accept card payments on delivery. This is a main driver for consumers.”

This, Gordon noted, is one of many ways that Aizel is well suited to cater to Russian consumers, be it in native tongue customer service or in simply understanding the tastes of the people who will buy from them.

That is also driving both investors and designers to take interest in their platform. Aizel recently raised $2.7 million euros in capital and is working with very well known brands like Gucci and Burberry – as well as the likes of Stella McCartney and Sergio Rossi. By the end of 2015, the company intends to ship more than 20,000 orders to 80 cities in Russia and the CIS.

But that’s just the beginning. Aizel is also working with other luxury boutiques throughout Russia to create a sort of luxury marketplace centralized under their logistics operation.

“We would like to do something new for Russia and create a new model. We are creating a marketplace for the boutiques in all Russian regions,” Gordon said. “We would to build up the network of offline boutiques – they exist all over the regions.”

That means that boutiques in Russia can load their inventory online on the Aizel site, and make their products available to anyone throughout Russia who wants to buy from them – immediately expanding their reach beyond those who can physically visit their shop.

Concurrently, Aizel plans to expand its physical retail locations from the one shop in Moscow to other regional physical stores. They are also building a publishing platform to support their luxury brands, and draw new users to the marketplace to learn and hopefully shop.

Russians love luxury — because, well, who doesn’t — but Aizel believes that instead of trying to change consumers by leveraging their love of luxury against their dedication to cash – they can just find a way to support it.

“We can meet our customers where they [want] to be to sell them goods they want to have. We all win.” Gordon noted.

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For more on the role digital and other innovation has had on the retail industry, join PYMNTS this August 3rd-5th in Chicago for Retail Reinvention, a 2-day experience designed to help merchants navigate the current and future wave of disruption across the retail payment and commerce landscape.

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