Rozetka.ua, Ukraine’s most famous online store, has experienced an interesting history of transformation over the 12 years of its existence. Starting as a joint business project of Vladislav and Irina Chechetkin, who invested $250,000 in the business, Rozetka has become the Ukrainian analog of Amazon with an annual turnover of about $350 million and hundreds of partners. How did this happen?
Interesting fact: According to UADM estimates, ROZETKA controlled 35% of the online electronics and home appliances retail market in 2016.
First Steps, New Warehouse and Customer Centricity Course (2005-2008)
It was the distant year 2005 …
Of the 47 million inhabitants of Ukraine, only 200 thousand people had the Internet, i.e. only every 235th inhabitant. At that time, online stores were only in their infancy as a phenomenon and did not claim even 1% of the household appliances and consumer electronics market. Nevertheless, they have already settled in this territory:
Vladislav Chechetkin armed himself with the techniques of his competitors and slowly but methodically advanced towards his goal of creating a profitable business for himself and his wife. A year after its foundation, in the summer of 2005, the Rozetka online store officially launched and sold its first product – a cell phone.
The initial headquarters of the company was Vladislav’s personal apartment, but towards the end of the year he decided to rent a small basement space on Podol – so the first Rozetka office appeared. As part of the office, a showroom was set up, which:
- to lure potential clients;
- showed them the products, allowed them to touch them live and get advice from a salesperson;
- served as a guarantee that it wasn’t a one-stop store.
The family of businessmen relied on customer focus and honesty. The employees of the service department were happy to compromise with customers and replace damaged equipment with new ones, without making them wait several weeks for the gadget to be repaired. Sellers, in turn, always sold the goods at the price indicated on the website, even if it was outdated or erroneous.
Even the author of these lines once faced such a step towards the client. After buying a phone and using it for a few days, I realized that it did not suit me. By that time I had talked for about an hour and removed the film from the screen, which violated the rules of returning the goods. Nevertheless, they took the phone back from me and refunded my money.
Until the end of 2007, Mr. Chechetkin’s business was gaining momentum, and almost 90% of the profits were reinvested in the expansion of the online store, which inevitably led to the fact that there was not enough space for everything. “Rozetka moved into new premises with a warehouse.
How Rosetka survived the global financial crisis (2008-2009)
The store’s development continued until October 2008, when the economic crisis hit and sales dropped by 37%. For those who are frightened by such a figure, it is worth noting that other online stores felt even worse. Some competitors simply sold off assets and closed down, while others laid off staff and reduced purchases.
This is how the Rozetka website looked in 2008
In this situation, Vladislav decided to go against the crowd – not only did Rozetka not lay off any of its 300 employees, but also began to buy even more equipment from manufacturers, thus achieving a lower price for its customers. While competitors were running around in a panic, Chechetkin’s company was luring their clients to itself, enticing them not only with an adequate (by the standards of the crisis period) price policy, but also with a stable level of service.
The online seller not only successfully survived the crisis, but also began to invest more money in advertising – in March 2009, the first advertising appearance of Rosetka on television took place.
First Steps to Marketplace and 6 million for the IRS (2010-2013)
Since 2010, Rozetka has become more and more like a foreign trading platform and a full-fledged online supermarket. In addition to electronics and household appliances, which the store had been selling for more than five years, the virtual shelves now include:
- sports accessories;
- camping equipment;
- perfumes and cosmetics;
- baby clothes;
- toys;
- books.
Apart from the altruistic motive of offering its customers a wide range of products, the company pursued quite specific financial interests. The margins on these product groups started at 30% (for books) and went up to 200% (cosmetics and perfumes). For electronics, this figure rarely exceeded 15%.
Not all goods were purchased in-house – some of the novelties belonged to partner companies, which paid the online store for placing their goods on the site’s virtual storefront. The modern Amazon works according to a similar scheme. To service the new categories of goods (the assortment numbered over 200,000 product items), Rozetka expanded its staff from 300 to 1,000 people.
The summer of 2012 turned out to be a local crisis for the Chechetkin spouses and their offspring. An inspection with the tax authorities came to the store’s office, which froze all work for a month and forced the owner to pay more than 6 million hryvnias to the state treasury. Later, Vladyslav and his team of lawyers will be able to get the money back, but the lost time and nerves will not be recovered.
The scandal with the tax authorities also disrupted Chechetkin’s negotiations with a potential investor, who was ready to invest hundreds of millions of dollars in the further development of Rozetka. The owner of the Internet site told about it in one of his interviews.
Horizon Capital’s major investment, new warehouse and advertising market leadership (2014-2016)
The experience of successful survival during the 2008-2009 crisis prepared the company for the events of 2014, when a sharp devaluation of the hryvnia began. While retail chains were able to sell goods cheaply (their warehouses were filled with products bought at the exchange rate of 12 hryvnias per dollar), online stores had a hard time.
Chechetkin chose a wait-and-see strategy and suspended purchases. By the time the hryvnya was fixed at 24 per dollar, some retail chains managed to fill their warehouses with goods at the exchange rate of 32, which made them trade at a loss.
Top 5 Ukrainian online stores of 2016 according to Gemius agency
Having waited out the storm, Rozetka continued its expansion, which did not go unnoticed, and the following year the investment fund Horizon Capital bought a stake in the Internet site’s business. According to experts, the amount of the investment could have ranged from $10m to $40m, while the entire rozetka.ua business was estimated at $500-900m.
Analysts see several strategically important points in such a move:
- The funds will allow Rozetka to accelerate its development and quickly become a monopolist in some assortment groups;
- an investment from a large fund with a reputation gives the company some protection from possible encroachment by fiscal authorities;
- Horizon Capital will help to transfer the business to European standards and prepare it for the procedure of initial public offering (IPO) and entry into neighboring European markets.
If there is nothing to say about the last two points at the moment, the realization of the first one can be observed already now. In October 2016, Rozetka became the largest Ukrainian advertiser. Analysts of Factum Group Ukraine noted that the media coverage of the online store reached 14 million people – a third of the Ukrainian population or more than half of Ukrainian Internet users.
Interesting fact: In his interview with ITC portal in 2008, Vladislav Chechetkin stated that Rozetka had never positioned itself as a store with low prices. In 2015, an advertising campaign was launched on TV that claimed quite the opposite .
Another notable expense in Vladislav and Irina Chechetkin’s business was the purchase of a huge class A logistics complex near Kiev. The territory of the warehouses is 49,000 square meters, which is one and a half times larger than that of the Auchan retail chain and 2.5 times larger than that of Novaya Posta.
The cost of the new warehouse of the “Ukrainian Amazon” is $16m. The new owners plan to invest another $32m in arranging the premises and installing automated lines for the delivery of goods. According to Chechetkin, the high-tech warehouse will help reduce the company’s logistics costs, which amount to $18m a year.
Rozetka already demonstrates all the signs of a classic marketplace – the company’s website presents the goods of more than several hundred partners. Nevertheless, at the current stage, partners have to deal with the shipment of goods and work with clients themselves. As soon as the new warehouse near Kiev is ready, Rozetka will be able to offer them full-field services, which include:
IT sector development, change of target audience and new partners of Rozetka Marketplace (our days)
Taking inspiration from Amazon, Chechetkin was able to build a strong content production department – author articles and reviews, testimonials, videos, e-mail newsletters. Through the efforts of more than 60 writers, editors and presenters, Rozetka has been able to attract 900,000 subscribers to its YouTube channel and generate 30-40 million hits to its website every month.
The most popular sites in the Ukrainian Internet according to the IAU Association for January 2017
If fifty people work on content for the Internet giant, but in the IT department of Rozetka there are more than a hundred specialists who regularly optimize the work of the site, improve internal software and increase server capacity. This costs the business owners $0.4 million monthly, but is strictly necessary to withstand the ever-increasing load of services.
Interesting fact: Rosetki’s product nomenclature includes more than 1.5 million product items from several hundred partners.
As the online store turns into a marketplace with a variety of product categories, the target audience of the resource also changes. When Rozetka began its journey in 2005, its virtual showcase featured only cell phones, communicators and laptops.
The store’s main target audience was upper-middle-income men who had enough money to pay for slow and expensive internet.
Closer to 2007-2008, when one tenth of Ukrainians had access to the World Wide Web, the target audience of the store was joined by so-called “pioneers” – young people who were interested in trying a new way of shopping. In addition to satisfying their adventurous “wants” young people received quality advice from store managers and a good discount, against the retail price. At that time, prices in online stores were noticeably lower, as they did not need to spend on large warehouses, rent large showrooms and dozens of employees.
Despite the fact that the crisis of 2008-2009 years has riddled the e-commerce market in Ukraine, it gave rise to a new category of Internet users who began to actively buy in online stores solely because of the low prices, because they do not have enough money to buy in popular networks.
From 2010 to 2015, with the introduction of new product categories in Rozetka and the growth of Internet penetration in the homes of Ukrainians from 23% to 49%, the online store’s CA was transformed once again.
Now the goods began to buy not only neophytes of the Internet world, but also the most ordinary housewives and those who had access to the World Wide Web. The vigorous buying up of traffic by the marketers of Rosetka successfully did their job and everyone who wanted to “buy a phone in Kiev” found themselves on the pages of the store with a winking green colobus on the logo.
Over the past 2 years, there have been no particular changes in the structure of the target audience of online stores, except that more and more purchases are now made not from a computer, but from a cell phone – via the website or Rozetka’s branded application. In addition, due to the products of partners, the range of online hypermarket has grown to an unprecedented scale. At Rozetka you can now buy anything from a set of winter tires for a car or diapers for a child, and ending with a case of Coke, paired with a bottle of whiskey Chivas Regal 18 years old. What not the Ukrainian Amazon?
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