German Westwing sells Russian e-commerce business

This story initially appeared in East-West Digital News, an international news resource covering the Russian innovation scene.

Westwing, a German e-commerce company selling furniture and designer home accessories, has sold to one of the funds of Elbrus Capital its subsidiary covering Russia and Kazakhstan. This full acquisition was closed in mid November, Elbrus Capital Senior Partner Dmitry Kryukov told Russian business daily Kommersant.

The amount of the transaction has not been disclosed, but in an exchange with Kommersant, market analyst Mikhail Burmistrov assumed it might have equalled at least the subsidiary’s annual turnover, or RUR 1-1.2 bln ($15-18 mio at the current exchange rate).

Westwing launched operations in Russia in 2011, Kommersant notes. The online store has several thousands of suppliers from Russia and abroad, and claims no less than 5 million club members in Russia and Kazakhstan. Last year, its sales revenues reached around 1 billion rubles (around $16.5 mio at the average exchange rate), according to official accounts, and could amount to 800 million rubles (around $13 mio) this year, according to company forecasts cited by Kommersant.

Westwing’s exit from Russia and Kazakhstan, as well as from Brazil, has been presented as “a strategic decision to focus on its main business in Europe.”

The move, however, seems paradoxical as the company, backed by Rocket Internet, just raised €114 mio in its  Frankfurt IPO.

While the Russian e-commerce market is expected to almost triple in volume in the next five years, local market experts consider the furniture segment as particularly promising. E-commerce penetration in this segment is around 4% vs. around 10% in more advanced markets, Kryukov told Kommersant.

Elbrus Capital intends to invest further in the company to help it reach its potential, Kryukov added.

Massive investments from Russian and Chinese players 

Westwing is not the only German retail company having fully or partially stopped operations in Russia, as reported last month by East-West Digital News.

In the course of this year Otto Group, the German e-commerce giant, announced the shutdown of its Russian online stores and; Adidas significantly reduced the number of its trademark shops in Russia and neighboring countries; Ceconomy sold all of its Russian Media Markt stores; and ECE Projektmanagement, the European leader in shopping mall management companies, left Russia.

Among the reasons for the decreased appeal of the Russian market in the eyes of German retailers are the ruble’s depreciation since 2014-15 and growing local competition.

Also leaving the Russian market (as well as Spain and Portugal) is Castorama, whose owner Kingfisher aims to focus on markets “where we have, or can reach, a market leading position,” as reported by Reuters.

While making losses with its 20 Russian stores, Castorama has a small, but fast growing e-commerce business in the country.

“They used to have quite a poor service to online customers, but began improving things about a year ago. Starting from almost nothing, this online business is now growing by 150% per year,” e-commerce expert Boris Ovchinnikov told East-West Digital News.

Meanwhile, major local players such as Mail.Ru Group (which has made an alliance with Alibaba), Yandex (in partnership with Sberbank) and Ozon (backed by MTS and Baring Vostok) have launched massive investment plans in Russion e-commerce.

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