Ukraine's rapidly developing e-commerce industry, the online trading of goods and services, is booming as consumers look for a more convenient way to purchase a gadget or buy a book. It grew by 25 percent in 2013, a fast pace for the domestic market, according to the Ukrainian Direct Marketing Association (UDMA).
Its rapid development is not a surprise. Almost half of the country’s population of 45 million people use the internet, according to a report by GfK Ukraine, a market research firm. From the country’s 19.3 million regular users, 2.8 million are now shopping online.
One reason for the boom is that traditional retail demands much higher real estate costs. Even before the current crisis, not many retail investors were willing to put their money into real estate, with only the largest brands confident enough to do so.
“Auchan, Metro and Zara are some examples that did,” says Viktor Oborskiy, an expert on business strategy with the Ukrainian Trade Guild, a consultancy. “All the rest worked under a franchise, with their products sold by local investors.”
Within the e-commerce sphere, the UDMA found electronics and household technology to be the fastest growing area with the biggest market share at $1 billion in sales, or 50 percent of the market. Airplane tickets contribute as much as $262 million to the figure, while fashion products make up $150 million of online revenues.
According to EY, this trend is pushing the country’s biggest technology retailers – Allo, Comfy and Foxtrot – to branch out online.
For now though, traditional retailers in the shopping malls or boutiques still dominate. From a domestic retail market the Ukrainian Trade Guild estimates at $92 billion, online sales do not exceed $2 billion. In the European Union, the e-commerce share of the market averages far higher, with countries such as the United Kingdom making 10.7 percent of their sales online.
Experts say economic hardship is the key reason why the country’s e-commerce is still lagging, with no online brand developing as strongly as the United States’ Amazon.com with its $74 billion of yearly revenue, or China’s Alibaba.com and its $7.5 billion in annual revenue.
Another factor is consumers’ low confidence in domestic online payment systems, prompting 80 percent Ukrainians shopping online pay with cash, according to EY.
Poor legislation is an obstacle too, especially when it comes to protecting customer rights, says Mariya Avramenko, an analyst at the UDMA.
Avramenko doubts that e-commerce will fully replace traditional retail outlets. She argues that cosmetics, for example, need to be tried beforehand.
Ksenia Khan, an art tutor in Kyiv, still does most shopping in the malls, with no more than 10 online purchases each year.
“In regards to clothing…it’s extremely important to touch the item,” Khan said. She uses online retailers, such as Rozetka.com.ua, mainly to check prices.
And online retailers know the hurdles. Prom.ua found that, although 435,000 entrepreneurs registered with their site to sell their products, small and medium businesses in Ukraine have very little understanding of the internet trade. Some 42 percent of internet traders had been operating no more than one year, with only 24 percent of traders having three or more years of experience.
But as Ukraine becomes more tech-savvy, attitudes are likely to change. Oleksandr Katrusha, a 33-year-old IT engineer, says that his family often uses online shops. His wife shops at Alibaba.com for children’s clothing, while sometimes they use Amazon.com and Bookshop.com.ua for books. Hotline.ua and Rozetka.com.ua are top on their list when it comes to electronics.
Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected].
