IT Minds Expecting The Next E-Boom

Antoine Poissonnier, a recent graduate of Harvard Business School, says he's not deterred by the economic crisis. In mid-December, he will launch a new Russian online luxury-goods retailer, CollectionPrivee.

Ilya Shirokov, now 27, started social networking site Moikrug.ru in 2005 before selling it to Yandex, the country's largest search portal, in March of last year. Now, he's working on an MBA at Stanford, after which he plans to return to Moscow to start a Russian "analogue" of a popular English-language site — but don't expect him to say which one.

"There are some business models that I think would work perfectly here," Shirokov said.

Poissonnier and Shirokov are part of a small but growing group readying for what they say will be the country's next big boom. Internet use is growing rapidly, and as traditional retailers struggle to expand and cover rising property costs, electronic commerce is ready to step in with lower prices and added convenience.

"The beauty of the Russian online industry is that it is purely in the growth stage," said Vincent Huttner, director of strategy at Publicis Modem, a digital ad agency. "It's much more exciting for young, energetic people like myself to work in such a market."

There are about 30 million monthly Internet users in Russia, according to Publicis Modem, a figure growing by 25 percent annually.

But the obstacles to e-commerce in Russia are still many. New and established online retailers have to deal with low Internet penetration outside of Moscow, counterfeit goods and a notoriously slow postal service. Even more problematic, most people do not have credit cards, and there are fewer still who would use them to make a purchase online.

"People don't trust the security [of credit cards]," Huttner said. "The issue of hacking is real."

Nonetheless, online ventures — from luxury-goods retailers to book and music stores — say well-established Internet business models in the West are ready to take off in Russia.

The country's largest retail site is Ozon.ru, which started in 1998 as a site for fantasy and sci-fi lovers to discuss their favorite books and where to buy them. Now, it looks more like a modest Amazon.com, primarily offering books, music, movies and software.

"We are still in a position where there is a certain organic growth to our business," said Bernard Lukey, Ozon.ru's chief executive.

The company's revenue growth will be about 60 percent in 2008, he said, and its growth in the regions will be about 90 percent. It has 250,000 unique hits per day and an average of 5,000 orders. The trick, Lukey says, is processing the purchases quickly — otherwise customers will shop offline.

"Timing is the issue with e-commerce," he said. "Nobody will wait one or two or three weeks."

Eighty percent of Ozon.ru's customers pay cash on delivery, creating a "big, big complexity" for the company outside its core business. Reluctantly, the site decided to start its own courier service, which now serves other companies as well.

"We didn't want to be in this business," Lukey said, referring to the delivery service. "We had to find this business."

Now, Ozon.ru can claim that if you order a book in Moscow by 3 p.m. that it has in stock at its warehouse in Tver, it will be delivered the next day for 200 rubles ($7). Customers can also pick up their orders at one of three locations in Moscow for less.

Because his company is able to sell books and other items cheaper than offline competitors, Lukey said, he expects Ozon.ru's market share to grow as consumers become more price-conscious.

Poissonnier, who first came to Russia in 2002 to set up the accounting departments and control logistics for Auchan supermarkets, is counting on a similar appeal. CollectionPrivee will sell surplus, high-end products at a discount to invited members of an online community — a strategy not unlike that of Gilt.com.

The company is targeting young, upper middle-class professionals who recognize designer brands but might not have time or money to shop retail. The web site's first flash sale — where a limited amount of inventory will be completely sold out — will feature products from French jeweller Les Perles de Noa.

Items normally sold for between $7,000 to $65,000 will be offered on the web site for $2,000 to $17,000. Customers may pay in cash and expect delivery in Moscow in five hours.

Poissonnier expects his business to catch on in Moscow before spreading rapidly to the regions, where demand is growing for luxury goods faster than boutiques can open.

"They're really eager to consume when they can," he said. "But in times of crisis, they pay more attention to price."