The office supplies retailer say it sacrificed some sales to improve online profitability. It also redesigned its business-facing e-commerce site, StaplesAdvantage.com.
With $1 billion in sales, Ulmart.ru is cooking up an initial public offering and plans to quadruple its fulfillment space in the next 18 months. The company also plans to expand its SKUs from 63,000 to 85,000 by the end of the year. That will help it reach its goal of $10 to $15 billion in annual sales in the next five years.
Ulmart.ru, Russia’s largest online retailer, has a wildly busy few years ahead of it if it wants to cross all the items off its to-do list.
The retailer, which forecasts its 2014 sales will reach $1.6 billion, up 60% from $1 billion in 2013, has already broken ground on two new fulfillment centers in Moscow and St. Petersburg and plans to quadruple the square footage of its current 32 fulfillment centers in the next 18 months, Dmitry Kostygin, Ulmart’s chairman and majority shareholder, tells Internet Retailer. Kostygin, who has invested $180 million in Ulmart, says the company also plans to expand its SKUs from 63,000 to 85,000 by the end of the year. Selling more products will help the retailer reach its ambitious goal to reach $10 to $15 billion in annual sales in the next five years.
And then there’s the initial public offering.
Ulmart hopes to raise $300 to $400 million with a public offering of stock in London, New York or Hong Kong, Kostygin says. He says accounting firm Deloitte LLP is currently reviewing its financials and Ulmart hopes to file for the IPO in the next year. Kostygin says the company is leaning towards Hong Kong. “They all have their pros and cons,” Kostygin says. “The U.S. is great, but politics are a real issue.”
Ulmart plans to use the money to add 800,000 to 1 million square feet of additional fulfillment space in suburban St. Petersburg and Moscow.
Ulmart was founded in 2008 and did $100 million in web sales in its first full year of operations, then doubled that amount by 2011. It began by selling mainly computers and electronics but has expanded into tools, power equipment and toys. Computers and electronics now only make up about 60% of sales, Kostygin says.
Part of what has helped the retailer grow so quickly is the way it gets goods into consumers’ hands, Kostygin says. Ulmart gives customers the option to pick up orders at a fulfillment center for free, and about 50% do. They also can elect to have their order delivered for free to one of Ulmart’s 300 outposts in 150 cities across Russia. Outposts are small stores where shoppers can both retrieve items they’ve ordered online and order new products. Consumers also can opt to pay to have items delivered to their homes. About 10% to 20% opt to have products delivered to their homes, and 30% to 40% use the outposts. Delivery to an outpost is free.
The price for home delivery depends on how quickly the shopper wants her item. For example, a shopper wanting a package at her doorstep in the next two hours might pay $16, Kostygin says. Delivery at 1 p.m. the next day would be less and delivery within a few-hour time window, for example, from 2 p.m. to 7 p.m. the next day, might only cost a few dollars, Kostygin says.
“In Moscow, shoppers will pay for last-mile delivery because they are wealthier and busier,” Kostygin says. In many cases Ulmart makes money on home deliveries, he says.
In St. Petersburg, Kostygin says consumers choose a mix of all three delivery options. And most shoppers in the rest of Russia choose to pick up their packages at an outpost, Kostygin says.
Offering consumers a place to pick up online orders is popular in Russia in part because many Russian’s still prefer to pay for items with cash. Web retailer Ozon.ru for example operates more than 2,100 pickup points in about 300 cities across Russia and Kazakhstan. Here, shoppers can pick up items and pay for them with cash if they choose. They can also prepay online with a payment card. Last year, Ozon said 80% of orders are paid with cash. Ozon also owns O-Courier, a delivery service that fulfills web orders on behalf of other retailers, such as Austrian shoe brand Mascotte and skin care retailer L'Occitane, as well as items sold on Ozon.ru.
Web sales in Russia will grow from $12 billion in 2012 to $36 billion by 2015, says investment bank Morgan Stanley. Ulmart will have its hands full for the next few years trying to capitalize on that surging e-commerce growth. Sticking with selling in Russia is enough for now, Kostygin says. “I would love to go into Brazil,” Kostygin says. “But we have plenty to focus on here.”