Groupon, which began operating in Russia in 2010, has asserted itself since then as a leader in the Russian coupon sales market. The site has also developed a cross-border business, selling virtually anything from smartphones to tableware and cappuccinators to Russian consumers.
Erik Bosgoed, head of logistics at Groupon International GMBH Switserland, explained to East-West Digital News how this business was built, why it has been suspended due to the ruble crisis, and what can be expected next. This interview is an excerpt from an industry report recently published by EWDN.
How and why did Groupon Russia start a cross-border business?
Groupon has a central DC from where we forward to all EMEA countries, including Russia, the UAE, etc. There are also some issues peculiar to Russia – for instance, passport data. We have quite good IT integration in Russia, in fact, so we can collect passport data on our Russian website even before customs clearance.
Another particularity of business in Russia is that the legal limit for duty-free purchases is still quite high – 1,000 euro per person and per month. In Europe it’s mostly 25 euro per parcel, so the Russian market seems very attractive for us on this point. With our buying power in EU, we can supply our customers in Russia with products of special interest to local consumers.
What if the duty free limit is reduced to 150 euro per parcel?
That could happen, but the effect would not be that great, since most of the items we ship to Russia are priced below 150 euro. The ruble’s fall certainly has a greater impact.
You mean goods are getting too expensive for Russians?
Not exactly. The problem is that we cannot make a reliable forecast for the future with such volatile currency fluctuations. If the ruble is losing more than 5% of its value daily, we cannot set our pricing policy and we take a loss working with our suppliers – they are paid in euro. The fall of the ruble was just too fast and steep, so we decided to stop shipping to Russia for a while until the situation gets a bit more stable.
Don’t you think it may take months or even years for the ruble to get stronger again? Aren’t you afraid of local competitors taking your niche?
I am not talking about the ruble returning to the same position it occupied at the beginning of 2014. [Editor’s note: the Russian currency fell from around 30 rubles to more than 60 rubles per USD in one year.] But the current instability, which was caused by political factors, will not last forever. Once the “storm” is over, we can review the situation and adapt. We are waiting for these extreme currency fluctuations to stop so that we can define a proper pricing policy. It might also be that we start exporting from Russia instead of importing. Any situation offers opportunities, and Russia is interesting to work with in all cases.
Recently we opened a new warehouse in Belgium with about 30,000 usable sq. meters. We’ve already shipped more than a million parcels from there. Such infrastructure makes international shipments, including those to Russia, much more flexible. We have thousands of suppliers from the EMEA region who can thus be connected to Russia. They are just one click away from starting business again with Russian consumers.
Should the situation take a long time to stabilize, what kind of loss would this represent for Groupon?
Actually, the loss would not be that great. If we do not sell to Russia, it’s just one market less; we already cover many others. The loss is difficult to estimate, as we had just started in Russia and we are still growing everywhere. Russia could be a big growth market, but since we have not yet reached its potential, the potential damage is rather small.
Should we resume operations soon with a more stable currency, we could ship about 10,000 parcels per month to Russia this year.
- To order EWDN’s latest report on cross-border sales to Russia, or receive an executive summary at no charge, please contact us at report [at] ewdn.com
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