March 14, 2014, 5:12 PM

Russian e-commerce leaders Ozon and Ulmart in funding talks

Ozon, often called Russia's Amazon, could be in line to raise $100 million, reports East-West Digital News, an e-commerce news service based in Moscow.

Two leading Russian online retailers, Ozon and Ulmart, are holding discussions with investors to fuel expansion in a market that grew by almost 30% last year. Ozon, a pioneering e-commerce holding with notable similarities to Amazon.com, is in the final stages of talks with AFK Sistema, a Russian LSE-listed holding operating in a range of industries.

Little of these discussions has been made public, but the Federal Antimonopoly Service (FAS) recently confirmed to the Russian news agency Interfax that it had approved the potential transaction.

AFK Sistema is considering acquiring 10% of Ozon, while affiliate MTS, a leading mobile operator, could acquire another 10%.

The deal could amount to $100 million – the same sum as Ozon’s previous round of funding, which took place in September 2011

A significant fraction of that money went to the acquisition of footwear e-retailer Sapato.ru in early 2012 – an operation that partially explains Ozon’s current need for new funding.

Ozon’s strategy of developing an in-house logistics and delivery infrastructure has also entailed high costs. Such leading players as Enter, KupiVIP, Lamoda and the Otto Group have taken a similar approach, which they justify by the lack of reliable infrastructure and providers to conduct large-scale operations in the country.

U.S. money for Russian logistics

Ulmart, a hybrid online-offline retailer of computers, home electronics and household appliances, is also seeking money to develop its logistics infrastructure. The company is holding talks with a range of high-profile US financial institutions, as reported earlier this month by CNews.ru, an online publication covering the Russian IT markets.

These potential U.S. investors include Goldman Sachs Investment Strategies, Blackrock Investment Management, Moon Capital Management, Tiger Global Management, Lazard Asset Management and Thornburg Investment Management, according to CNews.ru.

Ulmart declined to comment on the potential impact of the current international political tensions on these discussions.

Ulmart raised more than $110 million from Russian businessmen Avgust Meier and Dmitry Kostygin (via the funds Svoboda Corp. and Koshigi Ltd.) in two separate operations in 2011 and 2012.

The company’s sales exceeded $1 billion in 2013 (without VAT, but including returns), making it one of Russia’s top e-commerce players. Ulmart expects to see 60% growth this year, the business daily Vedomosti recently reported.

A significant part of Ulmart’s sales is generated via offline “cybermarkets,” where customers may choose and order items on super modern computer screens.

“It is our belief we are 100% online,” Ulmart’s press service told East-West Digital News in an exchange about the nature of the company’s ‘cybermarkets’ and their share in total sales. “A simple test of this is the following — turn-off the internet and there is absolutely no way to order anything from our 60,000 SKU.”

“The nature of our hybrid format should not be limited to the terms traditionally accepted: a fulfillment center with a carry-out area and monitors with access to our electronic-catalogue displayed via an online connection, does not mean we are offline; or, that these sales are offline,” Ulmart maintains.

The Ozon holding – which includes Ozon.ru, Ozon Travel, Sapato.ru and delivery company O’Courier – has not yet published its results for 2013. Its turnover reached $493 million in 2012, up 73% from the previous year.

E-commerce has lately become a major venture game, with many deals ranging in the tens of million dollars, as analyzed in a recent industry report by East-West Digital News. The largest round of funding to date came in June of last year, when footwear and apparel e-retailer Lamoda.ru raised $130 million.

This article first appeared in East-West Digital News, the  international online resource on Russian digital industries.

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