Financial Times: ‘Russia’s Amazon’ plans heavy investment and move into finance
Alexander Shulgin, Ozon’s chief executive, said the company will apply for a banking licence in order to ramp up its fintech offerings
© FT montage; Bloomberg, AFP via Getty

Ozon boss takes another leaf out of tech giant’s playbook as he fends off emerging rivals.

Ozon, Russia’s second-largest ecommerce player, will expand into financial services and groceries as it squares off against emerging rivals from the country’s finance and tech sectors who also want a piece of the rapidly growing market.

Alexander Shulgin, Ozon’s chief executive, told the Financial Times in an interview that the company will apply for a banking licence in order to ramp up its fintech offerings, including making loans to merchants selling on its platform.

“It’s hard for small and medium businesses to get financing on reasonable terms. It’s either too expensive or inaccessible,” Shulgin said.

“We see their goods’ turnover rate, we see their customer engagement, we see their conversion rate, we store their goods — all that data let us make an informed decision on what size loan sellers need to do business.”

Ozon, which has 450,000 users for a debit card and wants to expand into deposits, is following other tech firms into financial services. Its biggest online shopping rival,
Wildberries, has bought a bank, while Yandex, which owns Russia’s largest search engine, is considering whether to launch a bank, following a failed attempt to buy Tinkoff Bank.

Meanwhile Sberbank, the Russian state lender, plans to move into ecommerce, as it tries to boost an “ecosystem” offering customers everything from shopping, food delivery and streamed movies to financial services.

Shulgin said Ozon, which turned down an offer to partner with Sberbank last year, would remain focused on ecommerce, a market that has grown rapidly since the coronavirus pandemic.
Why did we survive Covid and attract so many customers?

“Because we had more warehouses, more couriers, and more pick- up points. And all that infrastructure was able to absorb the demand.” —
Alexander Shulgin

“Ecosystem is a trendy word now, but customers choose what they like,” Shulgin said, recalling his time working at Yandex, where he left a job as chief operating officer to take over Ozon in 2017.

“It was obvious that some products are very popular, and other products are very unpopular even though they’re meant to be part of one unified ecosystem.”

Ozon has tried to become Russia’s Amazon, even borrowing part of its name from the US company, for two decades. The move into finance echoes a similar service by Amazon.

Despite significant venture capital investment, Ozon has not turned a profit since its early days and has struggled to dominate an online shopping market that has been hampered by Russia’s huge size and poor logistics.

But after raising $1.2bn in an initial public offering in New York last year, and selling a $750m bond this year, Shulgin said Ozon will invest heavily in building out a network that can beat its rivals.

Meanwhile, the boom in online shopping has seen Ozon’s valuation double to around
$12.5bn. The ecommerce market grew 34 per cent last year to Rbs2.7bn last year, according to market researcher Infoline, but online sales still only make up 10.9 per cent of the total Russian retail market.

“There’s so much space on the market. It’s basically an empty room in terms of what you can do. There are lots of players, the market’s really fragmented, and to grow you need a lot of investment, a lot of IT, and lots of infrastructure,” Shulgin said.

“Not a lot of companies are prepared to do all that, because it means taking losses. But we’re ready to take them because we see the prize a few years ahead is enormous.”
A worker scans jars of food into an inventory count at an Ozon centre outside Moscow. This year, Alexander Shulgin wants to double Ozon’s spending on logistics and triple Ozon’s fulfilment capacity © Andrey Rudakov/Bloomberg

Ozon is seeing particular growth in its marketplace, the part of its website where it takes a commission on sales by third-party merchants. Set up in 2018, the
marketplace already accounts for about half of the items sold on its platform.

The company recently slashed commissions for most marketplace categories in an effort to attract more sellers and now lets sellers deliver items themselves, an approach Shulgin borrowed from China’s Alibaba.

As a result, Ozon’s gross merchandise value (gmv), the total value of everything sold on its platform, rose by 144 per cent to Rbs197.4bn last year, a faster growth rate than the 95 per cent achieved by Wildberries, the market leader.

This year, Shulgin wants to double Ozon’s logistics capacity and triple Ozon’s spending on fulfilment infrastructure, which he said the company needed to match its ambitions for growth.

Shulgin said investors — including private equity groups Sistema and Baring Vostok, which invested $135m to the IPO to retain control — are prepared to look past the losses after comparing Ozon to similar companies in other emerging markets, then
eyeing the potential riches should it grow to dominate in Russia.

“If you look at ecommerce companies around the world, they all do more or less the same thing,” Shulgin said. “Amazon started with retail, and so did we, others started with marketplaces, but then it became much more about controlling the logistics, infrastructure, and IT. Everyone does pretty similar stuff — the difference is in the quality of the services.”
Alexander Shulgin said he wanted Ozon to grow “organically” by selling more services as it grows its own capabilities, including offering its logistics and fulfilment centres for use outside its ecommerce platform © Alamy

The investments mean Ozon is likely to remain lossmaking for a few more years,
Shulgin said. Even though Ozon’s revenues grew 74 per cent year-on-year in 2020 to Rbs104bn, operating expenses rose by 55 per cent in that period to Rbs122bn, contributing to a loss of Rbs11.7bn on the year.

As Wildberries remains solely owned by its founder Tatyana Bakalchuk, Ozon’s IPO made it the only pure ecommerce player available to investors.

Shulgin said he wanted Ozon to grow “organically” by selling more services as it grows its own capabilities, including offering its logistics and fulfilment centres for use outside its ecommerce platform, as well as offering its sellers advertising.

To do that, he added, the company will use its investment to double down on scale. “Why did we survive Covid and attract so many customers? Because we had more
warehouses, more couriers, and more pick-up points. And all that infrastructure was able to absorb the demand,” he added.

Original article: https://www.ft.com/content/e6ec09c4-646a-44e6-8fe8-2a33605bfdbc
12.04.2021