The Amazon of Russia Is Building Its Own UPS—While Battling the Black Market

Russia doesn't have many Starbucks--at least compared to the United States, where they're everywhere. Instead, Russia's street corners have OZON.

OZON isn't a coffee chain. It's an online retailer vying to become Russia's answer to Amazon. But unlike Amazon, it operates more than 2,000 brick-and-mortar locations where customers can pick up the stuff they purchased on its website. OZON CEO Maelle Gavet likes to pitch these "pickup points" as the "Starbucks of e-commerce." "The Russians are not as addicted to coffee as the Americans," says Gavet, 36. "We should work on that!"

Although coffee isn't sold at these spots -- at least not yet -- OZON's store concept is just one of many innovations born out of necessity as the company has sought to overcome some of the fundamental obstacles that kept internet retailing from expanding as quickly in Russia as it did in the U.S. Because Russian infrastructure wasn't nearly as mature, OZON has not only opened those 2,000 stores, it has built what amounts to its very own UPS delivery service. The company has also fended off the black market and widespread counterfeiting in an attempt to reshape the nation's consumer landscape. The 16-year-old OZON recently landed another $150 million in financing to keep that effort going.

The end result is that OZON now has a hold on Russia that Amazon doesn't. In solving problems Amazon never faced, OZON is among a growing list of companies that are using their home-field advantage to shut Amazon out of some of the world's fastest-growing markets. As with mobile devices and everything associated with them, the biggest opportunities in online retail lie in countries where the full menu of 21st-century digital options are just coming to billions of people. But seizing these opportunities isn't as simple as Amazon importing its model and flipping a switch.

The rise of homegrown companies like OZON in Russia, Snapdeal and Flipkart in India, Rakuten in Japan, and Alibaba in China shows that starting on your own ground remains a major advantage, even in a supposedly flat world. As these companies expand and mature, they are shifting the center of gravity away from a U.S. tech sector that too often takes its dominance for granted.

When OZON started in 1998, Russia didn't have anything like UPS--and, in fact, still doesn't. By comparison, though Jeff Bezos started out shuttling Amazon's first orders in his car, he knew that once he put those packages into UPS' century-old logistics operation, he could count on them getting where they were going. And he could track them.

OZON launched its version of package tracking in September under a major software upgrade that also allowed it to stitch together a nationwide delivery network using regional couriers. With that infrastructure in place, Gavet says OZON is opening its system to non-OZON deliveries. In effect, OZON created something like UPS that it can now operate as another business. "You can use the Russian post or you can use us," she says.

The pickup points are another example of invention arising out of simple need. Without a reliable way to get all its deliveries the last mile, OZON decided to give customers the option of traveling that distance themselves. As a result, Gavet says, OZON now has a broad physical presence, which it could use to sell anything from newspapers and magazines to flowers. What's more, it solves the common problem of not having a secure place for a package to be delivered at home. She says OZON plans to double the number of pickup points to 4,000 or more. "The pickup points are a natural additional network for delivery," Gavet says. "For me, the surprise is that Amazon didn't come up with that idea."

Gavet also sniffs at what she sees as the provincialism of a U.S.-European tech press that has raved about Amazon's lockers. Tucked away in 7-Elevens and similar corner shops, the lockers take Amazon deliveries that customers retrieve by entering a PIN. Gavet says OZON launched lockers three years ago, well before Amazon. Also, unlike Amazon's lockers, she says, OZON's take cash.

In Russia, as in much of the world outside the U.S., cash on delivery remains common. That meant having to build a way for that cash to get back to OZON. In keeping with the need to accommodate traditional shopping habits that persist where digital access is lacking, OZON also takes phone orders, which only recently have fallen below 10 percent of the company's sales.

A more serious challenge presented by old ways of doing things is the persistence of underground markets, Gavet says, where cutting corners and skirting laws help keep prices low. Undercutting all comers on price has been key to Amazon's rocketing sales (if not profits). But Gavet says keeping up with gray market prices sometimes just isn't possible.

Instead, she says, OZON has had to work to sell potential customers on the idea that buying from a trusted source makes up for the difference in price. "It's the absolute certainty that whatever happens, we will take care of you," Gavet says. "Consumers learn the value of being sure that what you want to buy is what you buy."

So customer-centric a style could have come straight out of Amazon. If Amazon itself hasn't laid claim to every market in the world, its way of doing business has, or will do so soon. In Russia, Gavet says, hewing to those principles means a lot of paperwork, along with all the other work to put itself in a position to be able to deliver on those Amazonian promises. With $750 million in annual sales so far--a little more than 1 percent of Amazon's business last year--OZON remains a small player in online shopping. But with more than 140 million potential customers, the room to grow seems immense, if its systems hold.

"We built not only a website but the front and back of the website. We also built the warehouses. We also built the delivery, the call center, the payment system," Gavet says. "The fundamental vision hasn't changed. What does change is how you get there, because there are still problems you have to figure out."