Russians go online to hit the world's January sales

By bne IntelliNews February 1, 2013

Ben Aris in Moscow -

Christmas is high season for post offices around the world, but the Russian postal service has not one but two surges of mail over the holiday season. The second wave is due after bargain-hunting Russian consumers take advantage of the January sales abroad (a tradition not yet established at home) and have their goods sent home.

Russian Post (Pochta Rossii) is a crucial piece of infrastructure underpinning the country's burgeoning e-commerce sector. But the institution only just coped with the onslaught this year and likely will fall short next year unless there is the heavy investment that forms part of its modernisation plans.

The holiday shopping bonanza in Russia is a bit different to the rest of Europe as religious festivals follow the Gregorian calendar, which means that Christmas Day falls on January 7. Moreover, the main Eastern Orthodox Church holiday is Christ's resurrection at Easter, not Christmas. The upshot is that December 25 is a normal workday and all the present giving happens on New Year's Eve. "The New Year for postal workers is like an exam - there is an avalanche of letters, packets and parcels," Alexander Kiselev, CEO of Russian Post, tells bne in an exclusive interview. "This December we were expecting 2m inbound international items - twice the volume from a year earlier - but we actually received more than 3m registered letters and delivered several million more unregistered letters."

However, while Postman Pat can look forward to a well-earned rest in January, Postman Pavel faces a second wave. Kiselev says that the shopping habits of Russians have changed dramatically as Russians increasingly shop online. "We expect a second wave after the holidays and massive revenues from the US and Europe, thanks to the January sales," says Kiselev. "Based on the experience of last year, the volume of orders placed by the Russians in foreign online stores during the sales will not be less than the number of gifts for the New Year holidays."

Kiselev warns that 2012 was probably the last year when the service managed the volume of mail without the system breaking down; the volumes of post are expected to be even higher in the holiday season in 2013.

Delivering change

A roadmap for reform of the postal service was summited to the Russian Ministry of Communications in September and a draft law has been tabled that will make several important changes, including allowing the post office to sell shares, set up commercial courier services and provide the regulatory underpinning for a long-mooted "SvyazBank", or postal bank: two-fifths of Russian Post's revenues already come from financial services.

Improving the postal service - which was ranked in the middle of a recent survey looking at the world's biggest post offices - is also crucial to support the growth of Russia's ballooning e-commerce business, which turned over about $50bn in 2012 and is growing by some 30% a year, according to experts.

Kiselev estimates the total amount of investment needed to bring Russian Post up to par with its western peers is on the order of RUB220bn ($7.3bn), but a row over money has broken out with the government. In August last year, the company proposed that the state ante up RUB75.4bn for investments, which Russian Post said it would match with RUB37.6bn from its own resources. The government agreed in principle to match the Postal service's investment ruble for ruble. "However, the state programme on 'Developing the Information Society' that is supposed to run over 2011-2020, which was approved by the Federal Government on December 2, 2011, has no budgetary resources allocated," says Kiselev.

Russian Post is now lobbying the government for more financial support, but with the end of fat budget surpluses that the state used to enjoy, the Kremlin has imposed its own version of austerity. In the meantime, the post office is committed to investing RUB100bn on its own and has already started on the construction of five automated sorting centres, as until recently all of Russia's post was sorted by hand.

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