​Ulmart is one of Russia’s largest online retailers with an annual turnover of over $1bn that it has built from a standing start in the crisis year of 2008. Sales doubled each year for the first three years and even with the devaluation of the ruble and falling real incomes, the company’s revenues are still growing. In lean times people want bargains and the internet is the place to find them.

“The crisis was a boon for us, as consumers started looking for value for money when they went shopping. And that usually means going online to compare the offers,” Ulmart CEO Sergey Fedorinov told bne IntelliNews in an exclusive interview on the sidelines of the recent St Petersburg International Economic Forum (Spief).

The company was set up as an online retailer from the start by Dmitry Kostygin, an entrepreneur better known for setting up the Lenta supermarket chain. A mixture between the IKEA discount warehouse concept using increasingly large “urban fulfilment centres” based in towns and cities, and the Amazon internet store idea, where the goods are posted to you, the customer has three ways of buying a product and three ways of getting it home.

“A customer can come to our urban fulfilment centres 24 hours a day and seven days a week to choose the goods or talk to our experts,” said Fedorinov. “You can order online and get the goods from one of our pick up centres. Or the most expensive way is to order online and have it sent to your home. There is about a 5% difference in price between each option. In general, it makes the most sense to come to an urban fulfilment centre if you are buying a bulky good, whereas small and light things do not cost much to have delivered to your home. It’s part IKEA and part Amazon.”

Milking the millionki

The company already works in all 11 of Russia’s so-called millionki, or cities with a population greater than a million. There are two “hyper” format “suburban fulfilment centres” and another 40 smaller “urban fulfilment centres” in other cities, but Fedorinov said there are ambitious plans to roll out six more “hyper” format sites in more cities of the country by 2018. All in all, the company already covers 240 Russian towns and cities.

Ulmart is more of a platform than a store. While a key part of the business model is that the store always makes sure it has everything it offers in stock at all times, unlike IKEA, it does not get actively involved with the producers of its goods. In 2016 Ulmart will exceed 150,000 stock keeping units (SKUs), and by 2018 the electronic storefront will contain a million items, not counting digital content, the company says.

“It is more like a retail platform that producers of goods can use. Some companies sell their goods through their own platforms and stores as well as through Ulmart,” said Fedorinov. “We don’t focus on a range of goods so much as supplying the retail platform and delivery of goods. This makes us different from other international firms as they don’t have their own integrated delivery platform.”

Like so many business in Russia, the country’s shortcomings have led startups like Ulmart to build large vertically integrated businesses. A company like Amazon has the option of using the US postal service. While Pochta Rossii, the Russian mail service, is reforming and improving fast, it is still not very efficient, so Ulmart opted to build its own countrywide delivery service. The service will ultimately remain less expensive even when the reforms at Pochta are finished as it is so specialised, said Fedorinov, adding that Ulmart guarantees delivery within 24 hours in all the cities it services.

The growth of the company has slowed due to the recession, but e-commerce is still booming: the market has grown from RUB350bn ($5.6bn) in 2012 to RUB560bn ($15.5bn) in 2014 before the devaluation, and was up in ruble terms in 2015 to RUB650bn, but down to $10.1bn in dollar terms. Despite this, Ulmart has maintained its billion-dollar turnover in dollar terms.

“In the first three years, sales were doubling every year until about 2013, when we reached $1bn. The devaluation of the ruble [at the end of 2014 when oil prices collapsed] took the edge off sales, but we have maintained the $1bn turnover and in real terms in Russia that represents growth,” said Fedorinov.

The devaluation has made imports more expensive, but Fedorinov said the company was already sourcing more Russian goods and so its product mix has not been greatly affected by the fall in the value of the ruble. “Now there are a growing number of domestic goods,” said Fedorinov. “The production of goods made in Russia is rising, but we don’t get involved with the manufacturers like IKEA does. Moreover, we are planning to use our platform to export Russian goods to other markets.”

Part of the Kremlin’s new Plan K to reform the economy, led by former finance minister and chairman of the presidential economic council Alexei Kudrin, is to boost Russian exports after Russian labour costs fell below those of China. President Vladimir Putin followed up on the idea during his keynote speech at Spief, saying the state will pump more financial resources into its export promotion agency. “Our platform will work as well for export as it will serving the domestic market,” said Fedorinov. “There are already Russian goods we could export, but the problem is the barriers to trade are very high. If it starts, it will start with agricultural goods and light manufacturing.”

Trade in the other direction is already well developed. Ever since credit card use became widespread in Russia consumers began to shop in British and German online stores. Goods there (especially in the January sales) are cheaper than in Russia, even after paying the transport costs. At the start of 2013, the Russian postal system virtually collapsed under the weight of packages arriving from Europe and Pochta has since introduced a supplementary charge to try to curb the flood.

However, Fedorinov said the more interesting role for Ulmart is to be a staging post for Chinese retail goods heading for Europe, with St Petersburg effectively acting as a giant logistics centre to collect products from manufacturers before sending them on to customers in the rest of Europe. “If we collect the goods in bulk from the Chinese manufacturers before using our distribution system to send them on, then it will be cheaper for the consumer to buy them in Russia than it would be to order them directly from China,” said Fedorinov.

Turnover, RUB bn

2011	2012	2013	2014	2015
13.7	24.6	39.7	60.0	62.7

Source: Ulmart