“But you are depriving yourself of customers!” I am amazed by what seems to me a strange concept. But Kempen imperturbably replies that before Russia, the scheme had proved its effectiveness in many countries in different parts of the world.
— Our clients are people who know the value of the brands we offer, he says. They are mostly Western companies producing high-quality products in the medium-price segment. These products are not for those who go round the goods-for-the-home hypermarkets looking for the cheapest. Nevertheless, our business is based on the principle that the consumers never lose out, and indeed can make a considerable saving in their purchases. We hold events every day, when the prices on certain goods are reduced by as much as 70%. Look at this.
The international company Westwing, founded in Germany in 2011, is the leader of internet commerce in the market segment of goods for the home. It is represented in 11 countries on three continents (the 11th is Kazakhstan, where Westwing began operating in April 2014). Its headquarters are in Munich. At the present time, the company has about 1100 employees. The project has attracted more than 150 million euros of investment through such structures as Access Industries, Holtzbrinck Ventures, Investment AB Kinnevik, Summit Partners, Fidelity and others.
Michael van Kempen opens a page of the Westwing website on a computer screen.
The usual price of this dinner service is 2200 roubles ($65). At the present moment, we are offering it for 800 roubles ($27). The event ends a week from now at exactly 6p.m. And over this week, we start up many other events with considerable discounts on other goods. Our clients constantly monitor our bargain offers. It is a sort of non-stop sale for the middle class.
— Is the club system based on the idea that people are flattered to belong to some closed society of the chosen?
— Not at all. There is no closed society, it is just one of the models for working with a target audience. In this way one can get to understand the customers better and make them more precise offers. Incidentally, Russians have taken to the club system of trading very well. Our sales here are growing even more quickly than in other countries.
Russians have taken to the club system of trading very well. Our sales here are growing even more quickly than in other countries.
— But how do you manage to offer such large discounts?
— We work directly with the brands and producers, without any middlemen. The fact that we are trading in 11 countries strengthens our position in negotiations with the brands and enables us to get very good terms for our clients.
A New Niche
— How much difference is there between internet trading in Russia and in Europe?
— Online commerce is not yet as popular here. In Germany, the volume of electronic deals is over 5.5% of the entire trade turnover. In Great Britain, it is even more, about 12%. But in Russia it is less than two per cent. However, it is this very fact which creates the prospect of growth. In Russia, you can make a great leap forward, which is not possible in the entrenched European markets. Looking at the big picture, that is precisely what brought me here.
In Russia you can make a great leap forward, which is not possible in the entrenched European markets.
— How and when did this happen?
— I came to Moscow for the first time in 2008 as a tourist. After training in the specialities of “economics” and “information technology”, I was working in a large chain of retail stores. I had acquaintances in Moscow who had left for Russia at the end of the nineties, and it must be said, had been extremely successful. I was inspired by their example, but I wanted to do something new, something of my own. I came to Moscow several more times, and studied the markets, trying to find my niche.
— How exactly did you study the Moscow market?
— I talked to the experts and asked them lots of questions. There are agencies in Europe, CBS for example, which are willing to provide any information about one or other specific market. I did not find anything of the sort here — which, by the way, is one of the possible market niches.
Eventually I decided to stay in internet trade in designer products, to create a resource something like multi-brand catalogues. I took the English catalogue Asos as a model, and then went to the well-known electronic trade website Ozon.ru and proposed a partnership. They agreed, but expressed a desire to conduct sales on their own site. However, this did not interest me, I wanted to go my own way. But then it turned out that Russia lacked the necessary logistics infrastructure. Or rather it did exist, but only a few companies like Ozon.ru had it. But what were needed were couriers, warehouses, personnel and special software. Because this is not an ordinary warehouse full of the same type of goods stacked on pallets. In electronic trading, each box is individual.
— How is this problem solved in the Netherlands?
— Courier services and the mail are well developed there. Here, the mail works very slowly and unreliably. Furthermore, there is the Russian habit of paying in cash, and after delivery. In Holland, most purchases are paid for by credit card, and the courier then delivers the order, whereas in Russia, so far, a certain distrust prevails; no-one is keen to pay in advance. It should be said that as a result of this, there are many returns, when the client refuses to purchase the goods ordered. For example, in the clothing segment, the return rate sometimes reaches 50%: it doesn’t fit, or it’s not the right colour. But with electronic trade, it’s simpler. The return rate is only 3-4%. To sum up, there is still a lot of work to be done on the internet trade infrastructure. I also notice that many firms want to enter the electronic trading market but don’t know how to do so. One company which owned an internet startup wanted me to deal with this problem.
Many firms want to enter the electronic trading market but don’t know how to do so.
Infrastructure on the Rise
— Where do you begin in creating a goods delivery system?
— You begin with a specially equipped warehouse. We opened one near Moscow. We offered the use of our warehouse to other internet stores too. It was fitted with everything necessary for accounting for and processing orders – including packing the goods and sending them off to the end customer. Gradually the sales people came to appreciate the convenience of our system. There was no need to lease their own premises and take on staff, all they had to do was provide for the delivery of the goods to the customer. When the system was up and running, I considered that my job was done and decided to leave.
— Are you using the same model in Westwing?
— In principle, yes. We have our own courier service in Moscow. In other cities, we make use of outside courier services to deliver the goods. This can sometimes be expensive, but it means that we are not distracted from strategic matters.
— To which regions do you deliver orders?
— Fifty per cent of our trade turnover is in Moscow and Moscow oblast, seven per cent in St. Petersburg, and the rest is spread all over Russia. The sheer size of Russia presents certain problems, of course. Delivery times can be noticeably longer by comparison with other countries. And the longer the delivery time, the more risks for the product being delivered.
If only due to its size, Russia will surpass many countries in internet trade.
— Which factor do you think is slowing down internet trade the most? Insufficient development of the postal service, or something else?
— I think I would have to say the distrust to which I referred. This concerns not only prepayment for goods. In Russia, for some reason, contracts for negligible sums, which in Holland would be signed almost without looking at them, are studied for many hours, finding fault with every letter. And with bigger deals it’s far worse! But anyway, all this will sort itself out eventually, and then, if only due to its size, Russia will surpass many countries in internet trade too. Retailers cannot be everywhere, but electronic commerce is a universal solution.