Russia’s retail sector and what it means for transport & logistics

Russians are changing the way they shop – but what does this mean for logistics providers?

The retail segment is a key driver of transportation services in the Russian Federation, from bulk transport to end-to-end delivery. 

So, what are the trends and topics coming from Russia’s retail sector, and how will the type of transport the country will require to keep shoppers happy?

Transport & logistics and retail in Russia

The state of Russian retail

Russian retail sales grow every year.

Russian annual retail sales, incorporating all merchandise sold throughout the country of 144m people, exceeds $427bn.

The retail sector has been growing steadily for 15 years. Data from Trading Economics says that year-on-year spending has risen at a compound annual growth rate of 4.31%.

However, this doesn’t necessarily mean Russians are buying more. Inflation and economic uncertainty, alongside a full-on recession in 2014, have all impacted prices. Currency fluctuations also means that the rouble has devalued; good for exports, less so for domestic sales.

The fact remains that Russians still shop for both basic necessities and luxury goods, including cars and vehicles. 

The impact of ecommerce

Logistics services are seeing high demand thanks to the impact of Russian e-commerce.

Online shopping is quickly overturning traditional bricks and mortar stores. The rate at which ecommerce is growing is outstripping regular retail growth. 

Online sales currently only make up 4.5% of Russian retail sales, but the sector has been doubling year-on-year since 2011. It’s predicted by BNE Intelligence that online will cover 8% of the Russian retail sector by 2021.

We can see major growth in ecommerce in Russia at faster than the above rate, though. Look at 2019’s performance. In the first half of the year, the ecommerce market expanded 26% year-on-year, reaching a total of $11bn.

In 2018, Russian customers ordered 350m parcels and packages from online outlets.
A mixture of Russian Post as well as third party logistics providers handled the bulk of deliveries here. Here is a breakdown of deliveries using data from analytics firm Data Insight:

• In-house online store delivery services – 100m parcels – 29%
• Russian post – 90m parcels – 26%
• Outsourced courier delivery – 73m parcels – 21%
• Postamats/Pick-up points/lockers – 47m parcels - 13%
• In-house online store outsourced deliver services – 40m – 11%

Potential for 3pl in Russian retail

Retail and ecommerce are stimulating activity in Russia's 3pl sector.

If we take a look at the above, we can see that outsourced logistics providers, aka 3pl and 4pl providers, handled roughly a third of all e-commerce parcels delivered in 2018.

As we’ve previously discussed in our look at third party logistics in Russia, the market for such services is comparatively underdeveloped. This is despite the average 3pl growth rate being double that of the regular logistics service.

For context, the value of third-party logistics in Russia, in terms of contracts awarded and revenues generated, is $19.2bn. That’s about 7.8% of the whole national transport and logistics sector.

With this in mind, there is ample room to grow retail and ecommerce related outsourced logistics services in Russia. 

Market leaders like Eurosib, Nienshants and STS Logistics, as well as DHL and Kheune + Nagel are already established on the market.

For companies that run their own in-house logistics services, their transportation costs, from logistics hubs to final customer delivery, can be very expensive. 

Indeed, retail companies, and those supplying supermarkets, shops, and stores, are key targets for 3pl service providers.

TransRussia, for example, welcomes logistics and transportation managers from big Russian retailers like X5, Lenta, Adidas, and Russia’s Amazon/Alibaba equivalent Wildberries. They’re looking to streamline their delivery and intralogistics operations and turning to new partners to do it.

The key factor here is cost. Russian retailers generally spend 11-20% of their operating costs on transportation. In same cases, the costs can be as high as 30%. Fundamentally, this is almost unsustainable – particularly for small-to-medium sized companies.

Cost-savings are on the mind of all Russian retail outlets, which is where outsourced logistics comes into play, by:

• Reducing their capital expenditure (CAPEX)
• Mitigating risks
• Managing their inventories
• Focusing on the core competencies of their business operations

Warehousing, logistics hubs & intralogistics hold potential 

Intralogistics and warehousing will also benefit from surging Russian retail sales.

Ecommerce and retail are also attracting foreign companies operating in warehousing and intralogistics. Market fundamentals, as well as cross-border commerce, are attractive drivers for such internationals.

For example, France’s FM Logistics has opened a new logistics complex in Rostov-on-Don, south Russia, to accommodate the region’s rising retail sector. This expands FM’s presence greatly, so now it operates more than 800,000 square metres of Russian warehousing space.

China continues to be a major influence on Russian logistics, and ecommerce is no different. Chinese online outlets, like the aforementioned Alibaba, are making headway into the Russian market. This means a wide variety of goods requiring transport form the Chinese point of origin to Russian distribution hubs. 

To accommodate this, logistics hubs are under construction in border regions. One of the most recent, and largest, has been built just outside the Russian border in Heihe, Heilongjiang Province, at a cost of $420m, to accommodate rising cross-border trade stimulated by ecommerce activity.

Unlock the potential for logistics in Russian retail at TransRussia 2020

As Russia’s only international transport and logistics exhibition, this is an event you want to mark in your calendar for 2020. For exhibitors, you can meet nearly 17,000 cargo owners freight forwarders, retailers and others in need of transportation services and technologies on the Russian market. 

Visitors are primed for purchasing, and more than two thirds will only attend TransRussia amongst industry events.

Book your stand today and get ahead of your competitors in the market. 

To find out more, contact our team for more information on this industry-leading international event.