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Amazon, Other Foreign Online Retailers Have 'No Chance' to Succeed in Russia

Russia has become the it girl of e-commerce. Even amid a slowing economy, the country's online shopping increased 26 percent last year, to 510 billion rubles (about $14bn), according to Moscow's Data Insight, and could double by 2015. That has made the country an intriguing target for foreign players such as Amazon, eBay, Asos and China's Alibaba Group, while boosting the fortunes of such local companies as search engine Yandex and Amazon-like Ozon. Can foreign e-tailers make it there?

The dark horse leading the race right now is Ulmart, an online retailer that reported $1.2bn in sales last year. It has succeeded by doing what Amazon does not. Instead of wooing customers with low-cost home delivery, Ulmart encourages them to pick up their orders at urban outposts and warehouses that double as stores. While Amazon ships on such partners as United Parcel Service, Ulmart keeps its own fleet of 190 trucks. The St. Petersburg company ships fast-moving items in bulk from suppliers to urban outlets instead of breaking apart the shipment and repackaging it at a mega-hub. Where Amazon's Jeff Bezos racked up $3bn of losses in his early years, Ulmart's chairman and major shareholder, Dmitry Kostygin, says his site has lost around $30m in its first five years. And yet Ulmart's three-tier distribution and fleet allow it to bypass Russia's byzantine postal service, turn around orders in as little as seven minutes, and accept cash in a country where many are reluctant to use credit cards. While Amazon has expanded deliveries and may be testing the waters in Russia, Kostygin says he's not worried. "In this market," he says. "Amazon has no chance."

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