Morgan Stanley projects online retail sales of physical goods in Russia will grow to $31 billion in 2020 from $18 billion in 2017, and could reach $52 billion by 2023. Despite the growth, a dominant e-commerce player has yet to emerge in Russia.

Adrien Henni, chief editor, East-West Digital News

Adrien Henni, chief editor, East-West Digital News

According to a Morgan Stanley report released last month, the Russian e-commerce market for physical goods will grow to $31 billion by 2020 and may reach $52 billion by 2023—up from around $18 billion (1,040 billion rubles) in 2017.

“Russia is the last major emerging market without a dominant online retailer. Russia is at an inflection point,” believe the Morgan Stanley analysts, who bet on the emergence of “a leader being worth $10 billion” by 2020.

The report underlines the high penetration rates of the Internet (80%) and smartphones (66%) in Russia, in contrast with a mere 3% e-commerce share in total retail.

The top four e-commerce companies in Russia currently account for a mere 27% of the market vs. 63% in the USA and 84% in China.

Besides, “there is a clear link between the number of years spent online and the willingness to transact online,” note the analysts, who “believe Russia [is] reaching a critical mass of ‘mature’ Internet users, which is driving a rise in the number of transactions online as users become more accustomed to them.”


Morgan Stanley e-commerce forecast for Russia

Morgan Stanley Russia e-commerce forecast

Morgan Stanley projects Russia’s e-commerce market will grow 24% annually for the next four years, reaching 8% of retail sales. Sales in billions of rubles.

The report sees other growth drivers in the supply side. E-commerce projects have received significant funding over the past years from both private and public backers, and the trend should continue.

“More funding should allow for more scale, helping retailers to drive down key pain points (such as fulfilment costs), and to improve delivery times leading to a better overall customer proposition,” Morgan Stanley believes.

Chinese scenario


The Russian e-commerce market could develop according to a Chinese scenario. “Just like in China, we think the following is required for an e-commerce market leader in Russia to thrive: 1) develop a marketplace model, 2) invest in logistics, and 3) provide financial support for merchants,” write the authors.

“While in China, retailers are moving from a marketplace model (which brings together third-party sellers) to holding inventory directly (first party), we believe Russia will evolve from a first-party model into a pure marketplace, or at least a marketplace that controls more of the logistics channel.”

Thus, “there is scope for partnerships in Russia with domestic offline retailers due to the infrastructure challenges, although it remains unclear how feasible these are. Thus cannibalization remains a key risk for offline retailers,” Morgan Stanley concludes.


Battle of titans

The report justly underlines the rise of two players aiming for leadership, Yandex and Mail.Ru Group. The former has teamed up with Sberbank to create a huge e-commerce platform, as reported last year by East-West Digital News. Dubbed ‘Beru’ and currently in its beta version, this marketplace draws some of its inspiration from the Amazon model.

Sberbank, the country’s leading financial institution, is committed to invest as much as $500 million in the joint venture.

Sberbank’s huge client base (70% of the Russian population), its 14 million outlets across the country, as well as Yandex Market’s audience (20 million Internet users and 11 million mobile app users per day, respectively) are strong assets for the project to succeed.


The Morgan Stanley analysts even see in Yandex Taxi’s 400 million drivers (following the merger with Uber Russia) as many potential e-commerce delivery agents.

On its side, Mail.Ru Group has made an alliance with Alibaba Group, whose Russian B2C subsidiary AliExpress dominates the Russian cross-border e-commerce market. The two groups want to create a whole ecosystem that encompasses e-commerce, social communications and gaming.

This project will benefit from AliExpress’s existing strong position on the market as well as from the other marketplaces joining the JV. Under plans, a considerable audience will come from Group properties VK (Vkontakte) and OK (Odnoklassniki), Russia’s leading social networks, far ahead of Facebook.

Market concentration


Such projects will allow the main market players to increase their share. The top four e-commerce companies in Russia currently account for a mere 27% of the market vs. 63% in the USA and 84% in China, note the Morgan Stanley analysts.

A future leader may control as much as 60% of the market under a marketplace model, just like in China. This would justify a valuation of $9.8 billion, believes Morgan Stanley.

However, considerable investments in logistics will be required. The future leader will also have to provide suppliers with favorable financial conditions.

Due to these and other factors in the upcoming years, Morgan Stanley has changed the stock price target of NASDAQ-listed Yandex from $44 to $37, and that of LSE-listed Mail.Ru Group from $38 to $33.


Major market players ignored

Morgan Stanley took its 1,040 billion ruble (around $18 billion) market estimate for 2017 from a report published the Association of Internet Trade Companies (AITC, or AKIT in Russian). Data Insight, a reputable market analysis agency, puts the figure in the same order of magnitude, at 945 billion rubles (around $16.5 billion).

Meanwhile, the Morgan Stanley report, which tends to focus on general goods retailers, shows serious shortcomings when it comes to analyzing the top market players’ respective positions. Noting that is the largest first-party online retailer for general goods, the bank’s analysts see in it “a credible challenger to Yandex and Mail.”

With its logistics spanning across the country and its strong backers, Ozon undoubtedly appears as a major player with an important potential. However, in spite of huge capital injections (such as this one), this site has failed thus far to reach the leadership goal it had set when it was founded twenty years ago. It now ranks only seventh by sales volume, according to Data Insight’s latest annual ranking.


Meanwhile, several major sites generating even more sales than Ozon are analyzed very superficially (,,, or even ignored (, by Morgan Stanley’s report.

Thus, the traction of clothing retailer, which tops Data Insight’s 2017 ranking and claims its sales grew by 80% year-on-year in September 2018, may have been underestimated. According to Wildberries Advertising Director Egor Pchelintsev, the site’s market share will reach 14% this year—not 7% as stated in the Morgan Stanley report.

“Our turnover already reached 76 billion rubles for the first three quarters of the year, while Morgan Stanley puts the figure at 60 billion for the whole year,” Pchelintsev told East-West Digital News.

“According to our plans, we’ll continue over-performing the market, due to our investments to improve customer service, develop our logistics, and expand our range of products,” he added.

Russian e-commerce market share

This Morgan Stanley market share forecast for e-commerce leaders omits to mention such important players as,,, and, which generated even more sales revenues than in 2017. Infographics by RBC.

Why international players are so few in Russia

The report is not fully accurate when noting the “absence of international players in Russia’s e-commerce landscape,” as several Chinese and German players cannot be ignored. It is true, however, that Amazon and a range of other international players have never developed local operations, while trying more or less successfully to sell goods from abroad.

EBay came to Russia in 2010, but failed to develop significant traction, while JD.COM’s market entry attempt in 2015-2017 ultimately failed. German players gained important traction in the early 2010s, but recently shut down some of their online and offline retail activities.


Among the obstacles to market entry, Morgan Stanley cites the high capital requirements, the complexity of organizing local logistics (Asos, JD.COM), and to difficulty in finding the right merchant partners ( One could add the demanding legislation on personal data collection and storage as well as the economic crisis and the ruble’s depreciation, all of which have made foreign goods less accessible to Russian consumers since 2014-2015.

In addition, potential regulatory changes “could disincentivize further investment from international players,” notes Morgan Stanley. The authorities are considering such measures as heavier taxation on cross-border e-commerce flows and the potential introduction of a list of officially authorized online stores.

This article first appeared in East-West Digital News, the international online resource on Russian digital industries, and is reprinted with permission.