5/01/13

Mission to Moscow

EBay is investing heavily in emerging markets, and it's starting with Russia.

Katie Evans , Managing Editor, International Research

When Wendy Jones wrapped up her presentation on eBay Inc.'s global endeavors at the company's 2013 Analyst Day on the morning of March 28, her day's work was just beginning. By Katie Deatsch Jones, vice president of geographic expansion and cross-border trade at eBay, had just thrown analysts, investors and the media a curveball when she announced a major company initiative to grow its business in Russia. And so began the onslaught of interviews for Jones, and the painstaking process of answering the same question several times over: Why Russia?

The answer, according to Jones, is to gain major market share early in a country where online shopping is rapidly picking up steam.

"This isn't the first time I've been asked this today," Jones tells Internet Retailer. "It's not the natural first pick, but it was right for us for a few reasons."

Today, Jones says 61% of eBay's business is international, but it's mainly been focused on advanced e-commerce markets, not countries like Russia that are less developed but growing more quickly. "Our past approach has been largely reactive," Jones told analysts. "Going forward we're leaning in proactively."

That shift has implications for North American eBay sellers. As the online marketplace expands to emerging markets like Russia, eBay is introducing services that make it easier for sellers to reach customers outside their countries. That's a top priority, eBay says, as one in three new eBay users are acquired and activated by a cross-border transaction. One such new program is a shipping service that handles customs documents for sellers shipping internationally. Russia isn't one of the countries on that list yet, but Jones anticipates it will be by the third quarter.

"I had never tried to sell globally on eBay before," says David Schloss, CEO of Beach Audio Inc., a retailer of audio equipment, video games and office supplies that started selling on eBay in 2011. Now he is using eBay's international shipping service, called the eBay Global Seller Program, and says 10% to 15% of his eBay sales come from international buyers. "I sell everywhere they offer the service," he says, noting eBay just extended it to China and Japan.

Russia is prime prospecting ground for eBay for several reasons. E-commerce in Russia is highly fragmented, Jones says, with the top 10 players accounting for only about 20% of online sales. That compares with about a third in the United States, by Internet Retailer estimates. Based on available data, eBay is already No.1 in online sales to Russian consumers, Jones says. Russians place an order on eBay about every three seconds, and eBay processes more than 30,000 orders by Russian shoppers each day. Russian consumers purchased $400 million worth of goods on eBay's sites in 2012—up 54% from 2011, Jones says. And the number of active Russian users on eBay sites grew 75% year over year and is accelerating in 2013.

Jones says all this happened with little effort by eBay. Until recently, to shop on eBay Russian buyers would have to shop eBay.com, eBay.co.uk and other country-specific sites that were not in Russian, and filter for items that would ship to Russia. Now that eBay is investing in Russia, Jones expects even faster growth.

E-commerce in Russia is indeed growing, analysts say. Web sales in Russia will grow from $12 billion in 2012 to $36 billion by 2015, says investment bank Morgan Stanley. Russia has the largest online audience in Europe with 61.3 million web users, or 15% of Europe's total of 408.3 million, according to web measurement firm comScore Inc. And, after Italy, it boasts Europe's fastest-growing online population, up 15% in 2012 from about 53.3 million in 2011.

To reach the growing number of online shoppers, eBay in March launched a fully localized, Russian-language marketplace. However, Russians cannot sell on the site, they can only buy. Russian shoppers type in eBay.com or eBay.ru to access the site, which lists inventory from sellers in such countries as the United States and United Kingdom who ship to Russia. The marketplace currently has about 140 million listings, Jones says, and Russian users can search in Cyrillic or English and check out using PayPal, eBay's payments service that allows them to store and use payment cards for purchases.

To help launch the Russian site, eBay moved last summer to build a local team in the country. That group, which now has 14 staff members when counting both eBay and PayPal employees, is led by Vladimir Dolgov, general manager of eBay Marketplaces for the Russian Federation. Dolgov was formerly country director for Google Russia. Before Google, Dolgov was CEO of Ozon.ru, an e-retailer that refers to itself as the Amazon of Russia.

That team has been busy working on the Russian site and also on Russian mobile offerings. 6% of eBay's 2012 Russian sales came from a smartphone or tablet, Jones says, and Russian sales via those devices are growing 200% year over year for eBay.

Part of that growth likely stems from a Russian fashion app eBay launched in November. Called eBay Moda, the app for Apple Inc.'s iPhone is already one of the most downloaded lifestyle apps in the Russian iTunes store, Jones says.

Aiming to link mobile and local shopping, as it's done in the United States, eBay also just launched a Russian daily deal app that offers coupons for goods and services that consumers can redeem in Moscow stores.

Colin Sebastian, an analyst with investment firm Robert W. Baird & Co. who follows eBay, says focusing on mobile in Russia and other emerging markets is a smart move. "Many new [Internet] users are mobile-only users," he says. "Early success in mobile is helping them fuel growth in emerging markets."

EBay in April began marketing to Russians, running a nationwide TV commercial explaining how eBay gives Russians a passport to purchase global goods, showcasing, for example, handbags from Milan and business suits from London.

While focusing first on Russia, eBay also has ambitious plans to grow its business in Brazil, India and China, and in e-commerce markets where it does not have a local presence. Last year eBay launched an English-language site for international consumers that consolidates all its global inventory and shows a visitor only items that will ship to her country. It plans to add what Jones calls local language "skins" to that site in the same way it has for Russia.

Other global projects include a sales arrangement in November with Xiu.com, a retailer that has been selling fashion and luxury goods online in China since 2008. That move heralds eBay's return to China six years after it shuttered its operation there, following the emergence of Taobao.com, a unit of China's Alibaba Group Holdings Ltd., as the country's dominant online marketplace. Armed with ambitious game plans, some of which are already in motion, eBay expects its sales in Brazil, India, Russia and China, and emerging markets to account for as much as 25% of its marketplaces' global active users and 12% of its global sales by 2015. (Active users are those who have listed or bought on eBay in the previous 12 months.)

To put those figures in context, in 2012, consumers in those countries spent $3.2 billion on eBay marketplaces, 4.3% of eBay's global gross merchandise value, that is, the value of goods sold on eBay. EBay forecasts those markets will drive as much as 40% of its new active users over the next three years, helping it double its global active users from 100 million to 200 million by 2015. By comparison, eBay rival Amazon.com Inc. already claims around 200 million active customers who have purchased in the past year.

EBay's global sales growth will never come to fruition if U.S. sellers find accepting orders and shipping goods to foreign countries a hassle. Recognizing that, eBay last year launched its Global Shipping Program, which aims to make an international sale look and feel like a domestic transaction for both the seller and the buyer. The program, in beta testing, is open to U.S. sellers with a standard or higher seller rating. U.S. sellers eligible for the service see a banner within their account management hub inviting them to opt in. Consumers in the 26 countries where the program is live see on eBay only the items available for delivery in their country. When an international shopper clicks to buy, she's asked to enter her postal code and the service then calculates the final price, including shipping fees and import charges. Shoppers must pay using PayPal.

The seller pays the same fee to eBay he would for a domestic purchase and ships the package to shipping vendor Pitney Bowes Inc.'s warehouse in Kentucky. Pitney Bowes prepares the item for customs, and then ships it. Most shoppers receive their purchase within a week after it arrives at Pitney Bowes' warehouse, eBay says.

Joel Cohen, owner of AutoPartsDirectToYou, which sells automobile parts on eBay, Amazon.com and via its own e-commerce site, says the service has cured many of the headaches he had when selling internationally on his own.

"When we would ship a package to Europe, we would have no idea what the taxes and duties would be, and many times when customers saw the fees they would refuse the package," Cohen says. When that happened, the item would be sent back to Cohen along with a hefty bill. "For an $80 part we might have to pay a $40 shipping charge plus brokerage, duties and other fees," Cohen says. "One of those cases could wipe out 15 to 20 good orders."

Since opting into the eBay Global Shipping Program at the end of 2012, Cohen has increased his international eBay sales by about 15%. But there have been bumps. For example, at first when international shoppers would track a package and see it was en route to Pitney Bowes' warehouse in Kentucky some contacted customer service thinking the order was being shipped to the wrong place. Customs also refused some items. Many countries prohibit the import of liquids, so some orders containing oil or gas got sent back. Cohen says information about those restrictions was often in eBay's fine print.

Jones says by and large sellers are happy with the sales the program brings without a lot of effort. "One seller said, ÔAll I have to do is check a little box and then magical gnomes do all the rest of the work,'" Jones says.

It's not gnomes, however, that are getting those orders to foreign shoppers—it's a product of years of planning and investment by eBay to drive international sales. Jones hopes all the work will result in continued global growth for eBay and its sellers.

If all goes according to plan, before long she may never have to answer the "Why Russia?" question again.

katie@verticalwebmedia.com

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