BRIEFING: Russian retailer Ulmart adapts Amazon model

Ulmart, Russia’s leading online retailer, is building a network of urban and suburban pick-up points for its customers in an adaptation of US peer Amazon’s ecommerce model.

Instead of having massive warehouses in distant locations and counting on an unreliable postal service, the company has built up a network of collection points across the country, Dmitry Kostygin, chairman of the board of Ulmart, told PropertyEU’s European Retail Investment Briefing in London last week.

‘We believe that real estate and the internet should be combined,’ he said. ‘We lease some of our centres but we also build some. We do not have stores, but we have new generation fulfillment centres where customers come and collect the purchases they have made online. If you shop with the usual online retailers, you do not know where the items are, while we have developed a transparent system that instantly tells the customer where the products are, so they can decide whether and where to pick them up themselves - or have them delivered,’ Kostygin said.

Founded in 2008, Ulmart has some small pick-up points in urban centres, which it rents, and many suburban fulfilment centres, usually divided by type of merchandise, so the supplier delivers directly to the centre and not to a warehouse. In Russia, as in the rest of Europe, people are increasingly moving to the cities, so warehouse space has to move close to the customer. ‘We have invested in urban and suburban fulfillment centres, which are visible and easy to reach. It is more expensive for us but more convenient for the customer, and minimising costs is not always a good strategy in business,’ said Kostygin.

Ulmart believes that Russia is catching up with the West in the area of ecommerce and non-food sales, which are in the region of $20 bn a year, will increase to $50 bn. One obstacle to retail expansion is the lack of real estate, both shopping centres and neighbourhood stores, Kostygin said. ‘Significant investment is needed. We plan to double our infrastructure in Russia, building 130,000 m2 this year and the same next year. Some we build ourselves and keep, some we build and then lease back to release capital, some we have developers build for us. It is a good time to buy in Russia because it is cheap to build in dollars.’

Even the fall of the rouble has its silver lining for retailers, Kostygin said, because people travel less abroad and do most of their shopping at home. In addition, shoppers from countries like Finland and China are coming to Russia to shop.

The next step for Ulmart is to upgrade these new generation fulfillment centres so that they are not, as Kostygin puts it, ‘a dull commercial experience’. As in the West, customers are demanding a pleasant environment where they can sit in the service area and have a coffee or something to eat. ‘There will be fun and entertainment, but no fountains or anything extravagant like in Dubai.’

Watch the interview with Dmitry Kostygin on PropertyEU´s YouTube channel