How Tatyana Bakalchuk took Russia’s ecommerce throne
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Russian entrepreneur Tatyana Bakalchuk is an anomaly. In Russia’s male-dominated business world where success often depends on ties to the Kremlin, she is a self-made billionaire, the first such woman in the country.
Wildberries, the business she founded in her Moscow apartment while on maternity leave in 2004, has fought off venture capitalists and state-backed rivals to become Russia’s leading ecommerce site.
To ordinary Russians, the shy former English teacher is far less familiar than the celebrity she temporarily dethroned this year at the top of Forbes’ list of Russia’s richest women — Yelena Baturina, the widow of Yuri Luzhkov, Moscow’s longtime strongman mayor.
Baturina, who led the Forbes list from its inception in 2004, made her fortune amassing a construction empire while her husband was in office. He was sacked by the Kremlin a decade ago and died last year.
By contrast, Bakalchuk, 44, has become rich by reaching deep into everyday Russian life, even if Forbes estimates her $1.1bn fortune has dipped below Baturina’s $1.3bn in recent weeks, as the Covid-19 pandemic has hit the Russian economy.
Wildberries’ turnover grew 88 per cent in 2019 to Rbs223.5bn ($3bn), with net profit increasing from Rbs1.88bn to Rbs7bn, confirming Wildberries’ leading role in the Russia’s fast-growing $30bn ecommerce market. Customers made 750,000 orders a day, double the total in the previous year.
Bakalchuk, who processed her first orders herself at home, now runs a business with no external investors and 48,000 employees, including 12,000 extra staff hired to cope with surging business during the pandemic.
Along the way, she has turned down some serious financing offers, including one from Russian private equity house Baring Vostok and the venture capital arm of oligarch Vladimir Yevtushenkov’s Sistema, which co-owns Ozon, Wildberries’ biggest competitor.
Bakalchuk owns 100 per cent of the company but says its success owes much to a collective management team in which her husband, Vladislav, a former computer salesman, and Sergei Anufriev, a family friend, have played leading roles from the outset.
“We were never out to make money for something. This was mostly just a challenge for us,” Bakalchuk says in an interview with the Financial Times. “Investors came to us all the time, back when almost nobody knew about us, and made us offers. But we told them we didn’t understand why we needed to take them in.
“We didn’t even work with banks at the start — the first loans we took were just because our chief financial officer told us to do it even if we didn’t need it, because we needed to earn a good credit history.”
That approach has helped Bakalchuk lead a new wave of wealthy Russians who have made it rich without the friends in high places, questionable privatisation and generous state bank loans so common among the country’s oligarchs.
Most of the self-made entrepreneurs have done so online, the closest thing to a space for open competition there is in Russia’s state-dominated business landscape.
Russian job site HeadHunter successfully went public in New York last year. Classifieds site Avito was sold to Naspers, the South African-based internet group, at a $4bn valuation. Video streamer ivi has attracted investment from all over the world. Online bank Tinkoff has won plaudits worldwide (though the US is seeking its founder’s extradition for alleged evasion of American taxes).
Russia’s ecommerce market is just getting started. The industry still accounts for just 5 per cent of total retail sales, according to consultancy Data Insight, while even the sector’s biggest companies have yet to emerge to dominate the entire ecommerce market. This compares with the US, where Amazon controls almost half the online retail market.
“Even the top players are [only] 50 per cent of the [ecommerce] market. It’s abnormal. That’s not sustainable,” says Daniil Fedorov, chief financial officer of Ozon. He thinks market consolidation is inevitable. “All of us are too small . . . so none of us can hurt anyone. You just need to grab the growth.”
With most Russians confined to their homes under strict lockdown measures, the pandemic has drastically changed consumption habits: in the first week of quarantine, food delivery orders rose 78 per cent, pay TV doubled its revenue and transactions at educational platforms increased 64 per cent, according to online payments service Yandex.Checkout.
That shift has helped fuel more growth for Wildberries. In the first quarter of 2020, Wildberries doubled both turnover and sales year on year to Rbs75.3bn and 60.5m orders respectively.
Since Russia introduced the restrictions in late March, Wildberries has hired 12,000 new employees — some of them on a temporary basis at the request of large chains such as the KFC restaurant chain and athletic retailer Sportmaster.
Bakalchuk appeared in a series of commercials last month filmed by Russia’s online retail association in which the heads of its companies advertised together under the slogan: “Shop where you want. The main thing is to stay home.”
The idea for Wildberries came to Bakalchuk when she was on maternity leave in a small apartment in Ryazansky, a drab Moscow neighbourhood of decaying Soviet-era buildings and pre-fab tower blocks. The business began as an online clothes retailer aimed at women.
“I just needed something to replace my [teacher’s] salary,” she says. “I felt like I had to find something to do quickly to make myself feel like a fully fledged member of society again. It’s very hard to explain. It’s really a difficult period in a woman’s life, when she stops being free and doesn’t belong to herself any more.”
Bakalchuk figured that many women were in similar situations. “You can’t really go anywhere. You need to buy something, but you can’t buy it anywhere, so why not try selling it on the internet? Nobody was selling clothes online in Russia then.”
The Russian online retail market was then worth just $3.2bn, comprising about 1,500 small sellers of mostly electronics, books and household goods.
Convinced she had found a niche, Bakalchuk named the company Wildberries in an attempt to evoke bright, exciting clothing and began reselling stock from the German mail order company Otto.
When the first order came in, from western Siberia, she took the bus to pick the goods up from the supplier and mailed the package herself at the post office. Early customers in Moscow had their packages personally delivered by Bakalchuk.
By 2005, the Bakalchuks had spent $700 on setting up a website, placed advertisements on women’s forums and hired a few staff.
“A lot of [the customers were] women sitting at home for whatever reason and doing it for fun,” she says. “We had problems with their husbands in a few cases, because the wives would order something and then they’d have to pay it all off.”
Wildberries took time to emerge as a serious business because ecommerce lacked an infrastructure. Russia’s long distances, poor roads and sclerotic postal service held up development. Also, in 2006, Otto decided to open its own presence in Russia with a different partner, forcing Wildberries to seek new brands.
When the 2008 financial crisis hit, however, Wildberries’ lack of external investor cash meant it was in a flexible financial position. Not being heavily leveraged, it could obtain credit to pick up consignment orders that bigger retailers could not shift.
Bakalchuk bought €1m worth of Adidas training shoes on credit which the company sold online over the next two years. That was when, she says, she realised Wildberries could work as a bigger business. “If I’d read business textbooks, I probably wouldn’t have done anything. I’d have worked out the business model and realised it was impossible. But if you don’t know, then it can’t scare you.”
Today, the company offers 4m different products from 35,000 brands and 26,000 suppliers, with about 45 per cent sourced in Russia.
Bakalchuk has gradually introduced services to distinguish Wildberries from rivals. For example, customers can order an item of clothing in several different sizes, try them on in fitting rooms at Wildberries’ collection points, and return those that are not suitable.
Altogether, there are now 7,000 at pick-up points across Russia, often located in unprepossessing, low-rent, basement retail spots in residential districts.
But during the pandemic, the distinctive fitting rooms are closed indefinitely. Wildberries and other retailers are accepting only contactless payments and give all delivery personnel protective equipment.
When venture capital-backed start-ups tried to cut into Wildberries’ market share, Bakalchuk made delivery free. Soon afterwards, Wildberries stopped working with contractors and set up its own logistics departments.
“We have two main principles: giving our customers the best possible service and using our labour and financial resources as best we can,” she says. “That’s what helped us become and, I hope, remain the only profitable company in our sector in the country.”
As Russia’s ecommerce market grows, Wildberries faces bigger competition. Stronger rivals — in particular, deep-pocketed new players with tacit state backing — have moved in.
In 2018, Yandex, a Russian technology group, set up a $1bn joint venture with state-owned Sberbank that it called the “Russian Amazon”. A year later, Mail.ru, the tech conglomerate that is Yandex’s biggest competitor, announced a Russia-focused joint venture with Chinese ecommerce group Alibaba. Ozon secured $150m in new investment from Russian and US investors in April despite the pandemic.
None, however, has yet cut significantly into Wildberries’ market share: Wildberries’ total sales in 2019 were as much as its three closest competitors combined.
Wildberries is plotting further expansion of its own. The company has diversified into electronics, household goods, books and groceries, but 58 per cent of its turnover still comes from clothing. “They say they want to [sell multiple product lines], but the operating model is very different,” says an executive at one of Wildberries’ competitors.
“Their pick-up points are great but the logistics is more like offline — you put clothes in a box and ship. For apparel it’s genius but for the rest I don’t see how it works. The margin on everything else is much lower.”
As well as detailed advice pages in the genre of Wirecutter aimed at mothers and health fanatics planned before the pandemic, Wildberries has launched a coronavirus section aimed at helping Russians learn to work from home, get fit and manage their children. It holds online classes for small business owners.
“It’s about what our customers want,” says Bakalchuk. “We have 1,500 different pillows for pregnant women and it’s very hard to sort through and try them to tell which one you need. If a mom has someone [at Wildberries] to tell her what she needs and why, it’ll help her with future purchases.”
Bakalchuk says she wants to keep expanding steadily in Russia, rather than racing into untested new markets. However, the company has ventured abroad, launching sales in Poland and Slovakia, as well as exploring possible expansion into Scandinavia. Wildberries also sells to Belarus, Kazakhstan, Kyrgyzstan and Armenia. The challenge in all new markets will be to start from scratch with new chains of local suppliers.
“It’s not about forcing Russian goods on other countries,” says Bakalchuk. “We want small and medium-sized producers to be able to work through us with the whole of the EU and [the Russian-driven] Eurasian Customs Union.”
Bakalchuk will remain true to her frugal principles. “Russian entrepreneurs who go to schools such as Harvard are all obsessed with the idea that you come up with a business idea, raise money and grow as fast as you can. But when we were starting out, it was all alien to us,” she says.
“We always had enough money [of our own] to grow, and we couldn’t invest more than we had to spend. Why? [If you do,] your business model will have feet of clay. It has to be done right.”
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