The Ukrainian e-commerce sector swiftly recovered from the 2014-2015 financial and economic crises, and has reported up to 30 per cent of annual growth over the past three years. This is one of the highest levels in Eastern Europe.
The Ukrainian private equity Horizon Capital estimates the compound annual growth of Ukraine’s e-commerce segment at 26 per cent y/y in USD terms over the past three years. Even more importantly, this segment is poised for further growth, with online sales accounting for a ca. 7 per cent share of total retail in 2018 vs. 15-20 per cent share in mature markets.
Meanwhile, EVO, the internet company behind the country’s largest marketplace Prom.ua, believes that the e-commerce sector could grow by 25 per cent y/y in 2019 to UAH81.25bn (USD3.1bn), following a 30 per cent y/y growth in the previous year.
“This can be partially attributed to the underdeveloped market — there is simply ample room for growth,” EVO’s co-founder and business development director Denis Gorovoy told the Central European Financial Observer.
On top of that, Ukrainians are increasingly trusting online shopping, Mr. Gorovoy adds. “[The quality] of services has significantly improved, and this also affects the frequency of purchases.”
A third important factor is the development of mobile internet in Ukraine. In 2017, the share of online orders from mobile devices at EVO’s Prom.ua stood at 33 per cent, compared to 62 per cent from desktop computers. Last year, mobile orders grew to 45 per cent, while the share of orders from desktop computers dropped to 50 per cent. “You can buy anywhere, anytime now,” Mr. Gorovoy added.
Cards vs. cash
According to a national survey of internet users, conducted by the GfK market research group in May, 36 per cent of consumers prefer to pay for purchases with a banking card on a website, while cash payment is chosen by 23 per cent of buyers. 14 per cent of respondents preferred payment by a bank transfer or payment on delivery at a post office. The main barriers for customers to pay with a card on the website are: reluctance to pay in advance (reported by 44 per cent of respondents), a lack of such a payment method on the website (26 per cent), a perceived danger of paying online (10 per cent), as well as the high cost (9 per cent).
Shoes and clothing are the most popular online purchases for Ukrainians — 64 per cent of internet users make such purchases, while 6 per cent want to make them but are not able. Some 11 per cent of respondents buy food online, while 11 per cent of internet users would like to but are unable.
Merger creates a leader
In November 2018, EVO finalized a merger with Rozetka, the nation’s leading online e-commerce retailer. According to Horizon Capital, which took part in the deal, the combined Rozetka-EVO platform has 2 billion website visits and facilitates 30 million e-commerce transactions per year in four regions.
Rozetka and Prom.ua consistently rank among the top 10 most-visited websites in Ukraine, reaching over 40 per cent of Ukraine’s internet audience.
Aleksandr Sokolov, CEO of Kyiv-based Pro-Consulting company, believes that the potential for further consolidation on the e-commerce market in Ukraine is “still significant”. “That mainly concerns specialized segments of home and business products,” he added.
In addition, not all Ukrainian offline retailers are actively represented in the online segment, and if some of them are not planning to sell goods through existing e-commerce giants, “then they may consider the acquisition of an existing online store instead of launching their own website. This may include clothing stores, household goods retailers, as well as sellers of goods aimed at the B2B segment,” Mr. Sokolov said.
“There is a high probability that in the coming years, several transactions will be made that aim to buy websites focused on retailing household appliances and electronics. In addition, the demand for business in clothing, cosmetics and perfumery may grow,” Pro-Consulting CEO told the Central European Financial Observer.
A business model that “kills”
“There are players on the market that will not abandon the situation so simply, when Rozetka is number one in the market and has been constantly strengthening its position,” Artem Shevchenko, founder and CEO of Hubber, a Kyiv-based B2B cloud platform that provides services to retailers and suppliers, told the Central European Financial Observer.
Specifically, 27.ua — an online shop controlled by Epicentre K, a chain of stores specializing in home improvement and gardening — will do “everything possible” to provide Rozetka with “healthy competition”, Mr. Shevchenko believes. However, he argues that 27.ua can only succeed if it is transformed into a marketplace.
Rozetka and Epicentre K have a track record of rivalry. In 2016, Rozetka’s CEO Vladislav Chechetkin accused Epicentre K of “unfair competition”, alleging that they were pressuring suppliers not to cooperate with Rozetka.
Hubber’s Shevchenko believes that many online shops in the market could be “killed”, not because of the Rozetka-EVO merger, but “due to their business models”, which may lead to losing competitiveness.
“Rozetka and Prom.ua are marketplaces. The marketplace model implies a radically different format of interaction with suppliers and a completely different range of product expansion,” Mr. Shevchenko said. “Therefore, other companies in online retail should not seek consolidation, but look towards the marketplace model in order to continue working in this market,” he added.