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The 'good times' could be over for foreign retailers in Russia

0 29 January 2014

Russian consumers are increasingly choosing to buy products from foreign online retailers. To meet demand, more and more foreign retailers have launched Russian-language sites. 

eBay has been available to Russians in their own language for some time, while last year UK retailers Asos and Next also added a Russian language option to their sites. 

Favourable tax rules (Russia’s €1000 duty-free import threshold is the highest in the world) allow foreign sites to offer lower prices than many domestic retailers, while they are also often considered more trustworthy than Russian online stores.

These factors have helped cross border e-commerce to grow at between 50-100% annually for the past few years. In 2013 the total value of e-commerce imports to Russia was around $3 billion, and one study found that 36% of Russian online shoppers have bought something from a foreign site. However, recent developments threaten the wellbeing of this booming sector.


Impossibly demanding customs procedures


At the end of December stricter customs procedures were enforced at Moscow's Sheremetyevo and Vnukovo airports, prompting international express couriers including DHL and FedEx to suspend deliveries of parcels to private individuals. 

The rules - which require buyers to provide a copy of their passport and registration document, a screenshot of their order details, a photo of the items ordered, an original bank statement indicating the online store as the payee, an original customs declaration and a copy of their credit card - are not new. However, previously they were applied in only 5% of cases. Problems arose when customs officials began to enforce them for all parcels addressed to individuals.

The international couriers’ complaints seem to have been heard, and yesterday Andrey Belyaninov, the head of the Federal Customs Service, announced that from 29th January the more stringent procedure will only be imposed for purchases weighing more than 10 kilos or worth more than €200. Belyaninov also said that the department is considering permitting express couriers to provide electronic, as opposed to paper documents, in order to further streamline the process. 

While foreign companies have, on this occasion, managed to get their own way, they will find it tougher to convince the government to reverse plans to reduce the duty-free import threshold. 


Duty-free e-commerce under threat 


The duty-free threshold currently stands at €1000 or 31kg, above which buyers must pay a 30% tax. In December the Finance Ministry announced plans to reduce this to $150 in the first half of 2014. At the time the Economic Development Ministry argued that the new threshold was too low, but in a recent interview Alexey Ulyukaev, who heads the department, said that the €150 limit has now been agreed on. 

This will please many domestic retailers, who have been actively lobbying for an end to “duty-free e-commerce”, but consumers’ rights organisation OZPP considers the plans protectionist, and has requested permission to stage a protest of ‘up to 10,000’ people on Bolotnaya Square, the centre of the December 2011 Fair Elections protests.  

As well as the public protest, which is planned for 8th February, the OZPP also calls for a boycott of Russian retailers that have lobbied in favour of the changes (such as Enter.ru and KupiVIP) and also eBay, which it accuses of passiveness on the issue.

The likely impact of the new regulations however should not be overstated. Russia Post, which ships more than 95% of e-commerce parcels to Russia, says that the average order value for 45% of customers is below €100, while a  study carried out by the Higher School of Economics found that the average clothing order from foreign online stores is €74 and the average for electronics is €126. 

It has been suggested that the changes could affect Western retailers, who tend to sell more expensive products, more adversely than Chinese ones offering cheaper items. However, the overall impact of the changes are hard to predict. 

Top image via Shutterstock

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