Reblogged by Keith Dickinson
Russia: Where the Deliveryman Gives Fashion Advice
Galina Melnikova doesn’t have much time for shopping. So the 31-year-old office worker from Moscow has joined the 1.5 million active customers of Lamoda, an Internet fashion retailer with a twist: It sends sales assistants directly to shoppers’ homes. Not only does Lamoda’s uniformed deliveryman bring the clothes that Melnikova orders, but he also waits for her to try them on, offers fashion advice, takes returns, and processes her payment on the spot. “Last time, I bought the clothes but left the belt, as I didn’t like it,” she says.
Selling clothing online in Russia—the world’s most sprawling nation, spanning nine time zones—poses a logistical challenge like nowhere else. To make matters worse, the country’s postal service is widely considered unreliable, a potential hurdle for anyone starting a Web shopping business. Yet Lamoda and domestic rivals Ozon.ru and Wildberries have made proverbial lemonade of that shortcoming by employing armies of trained advisers to serve as both couriers and mobile stores. “In Russia you have to make more of an effort to create a great customer experience, because you don’t have something like DHL (DPW:GR) in the West,” says Lamoda Chief Executive Officer Niels Tonsen. “You really need to create that yourself.”
Breaking with tradition is often crucial for success in online retailing. Asos (ASC:LN), the U.K.’s biggest Web-only fashion retailer, has more than doubled its revenue since introducing free shipping and mobile shopping in 2010. Amazon.com (AMZN) boosted sales with the 2005 introduction of its Prime service, offering unlimited two-day shipping for customers paying an annual fee. Lamoda managers say their approach could be similarly transformative.
Photograph by Fyodor Savintsev for Bloomberg BusinessweekUsing a mobile terminal to process the payment
Lamoda was started three years ago by German startup factory Rocket Internet, which has famously aped the business models of Web innovators from Amazon to Zappos to launch companies in emerging markets. Lamoda employs about 700 couriers, each wearing a pale blue and black outfit. Along with delivering products such as 6,999 ruble ($199) Mango jackets and 6,390 ruble Sinequanone dresses—usually the day after they are ordered—couriers are trained to offer the kind of advice shoppers expect from a store assistant, such as tips on fashion and sizing.
Customers get 15 minutes to try on their orders, after which they can accept or return them. If they choose to buy, they can pay using cash or via a credit card terminal carried by the courier. “The consumers like this so much that they come back more often,” says Tonsen, a former Rocket Internet manager.
Lamoda works with about 900 brands and has exclusive deals with several dozen of them—including Topshop and River Island from the U.K. and Italy’s Iceberg—to sell their fashions online in Russia. That gives it an edge over Ozon.ru and Wildberries, Tonsen says, which also let customers try on what they’ve ordered.
Total online sales in Russia rose 26 percent last year, to 510 billion rubles, and are set to double within five years, according to researcher Data Insight in Moscow. In 2013, Internet sales of clothing, shoes, and accessories exceeded $1 billion, making it the second-biggest category in Russia for online sales after electronics. Such growth has attracted the likes of the U.K.’s Asos, which started a Russian-language website in 2013, and EBay (EBAY), which will open its site to Russian merchants this year.
Photograph by Fyodor Savintsev for Bloomberg BusinessweekPulling the order at a Moscow warehouse
Along with creating e-commerce sites such as Germany’s Zalando and Lazada in Southeast Asia, Rocket Internet established Lamoda in 2011 as a clone of U.S. shoe and clothing retailer Zappos. It quickly found that the shortcomings of Russia’s postal system and the cost of private express-delivery services posed an obstacle to its ambitions. “Europe and the U.S. have a very effective infrastructure when it comes to the postal system,” Tonsen says. “This is one of the biggest challenges that e-commerce faces here in Russia. What we did very early along the way is we created our infrastructure.”
That includes a 20,000-square-meter (215,278-square-foot) warehouse in Moscow from which goods are delivered locally or shipped to one of 20 satellite centers in outlying cities where Lamoda also makes its own deliveries. Its couriers use a fleet of 400 cars to get products to customers. “To maximize your market share, you need to invest serious money into the Russian market—logistics, delivery points, cars,” says Boris Ovchinnikov, co-founder of Data Insight.
Photograph by Fyodor Savintsev for Bloomberg BusinessweekFinalizing the delivery route
The cost of delivery for Lamoda may account for as much as 25 percent of an order totaling less than $100, according to Daria Yadernaya, managing director for fashion consultant Esper Group in Moscow. Yet the company doesn’t charge for shipping and seeks to keep prices at the same level customers would pay in stores. “While its business model is well-received by the Russian market, Lamoda still needs to prove its financial efficiency,” says Mikhail Burmistrov, general director of researcher Infoline-Analitika.
According to Burmistrov, Lamoda’s annual expenses exceed its annual sales, which he says likely tripled to more than 6 billion rubles in 2013. The red ink hasn’t stopped investors from betting on its potential. Over the past two years, Lamoda has raised more than $200 million from billionaire Len Blavatnik, JPMorgan Chase (JPM), Gucci owner Kering (KER:FP), and others. Rocket Internet retains a majority stake. Burmistrov forecasts the company may become profitable in 2014 and consider an initial public offering in the second half of the year. Tonsen, who won’t discuss the company’s financials, says Lamoda doesn’t rule out an IPO.
For now the company will continue to focus on building sales by sending its fashions and its couriers into more shoppers’ homes, a retail practice Tonsen says is unique to Russia. That suits Moscow office worker Vitaslavna Minaeva, who says she isn’t embarrassed to have a dispatcher wait while she tries on outfits. “I normally offer him tea or coffee and go to another room to try out things,” the 23-year-old says. “The couriers are polite and can advise on what to pick when I am hesitating between the two.”
Still, Tonsen concedes, their advice might not always be 100 percent honest: “Certainly, our salespeople wouldn’t tell you your backside was too big in the dress.”
The bottom line: Online sales in Russia rose 26 percent last year, to $15.3 billion. Several merchants operate their own delivery forces.