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Online retail in Russia stifled by infrastructure: PwC

By Maria Kiselyova

MOSCOW (Reuters) - Russian online shopping growth is being held back by poor infrastructure and slow delivery times, accountants PWC said on Wednesday, forcing retailers to spend more before they reap any benefit of rising Internet use.

Russia overtook Germany as Europe's biggest Internet market in September with about 60 million users, while a penetration rate of around 43 percent means e-commerce is still at an early stage of development.

A PwC survey of 2,000 Russian online users found 92 percent of them shop at least occasionally on the web, up from 80 percent in 2009, but only 12 percent do it every week compared to 28 percent in Britain.

"If we compare the pace of Internet penetration in the Russian provinces with that of online retail, we will see a very significant lag, and logistics is one of the main reasons," said Vardan Gasparyan, senior manager at PwC Russia.

As rail is by far the most common means of transporting goods, consumers often have to wait a week before they get their order, which makes online shopping a less attractive option than visiting a mall, said Vardanyan, who specializes in supply chain management.

Russian retailers often cite a lack of modern infrastructure as a major constraint to expansion in the provinces, where lower penetration of organized retail and rising disposable incomes underscore the potential for rapid sales growth.

Traditional retailers, such as food chain X5 and electronics specialist M.video, have the advantage of a physical presence in the provinces after developing their own logistics and warehouse infrastructure.

But pure-play online retailers will have to invest in their own infrastructure to catch up, said Vardanyan, who added a relatively low use of credit cards in Russia and a general mistrust of the Internet were two other constraints.

According to the Public Opinion Foundation (FOM), the Russian e-commerce market will reach 315 billion rubles ($10 billion) in 2011, an increase of nearly 30 percent from 2010.

In September, Russia's leading online retailer Ozon.ru secured funding of $100 million, the biggest private investment to date in Russia's e-commerce market, from a consortium including Japanese online retailer Rakuten.

And Russian online groups Yandex and Mail.Ru raised nearly $2.5 billion between them in the two biggest Russian IPOs of the last 12 months.

Most respondents to the PWC survey said they shop online for household appliances, books, mobile phones and computers, but online deals for clothes and footwear, video and audio products, online travel and entertainment bookings are showing the fastest growth.

($1=31.2327 rubles)

(Reporting by Maria Kiselyova; Editing by John Bowker and Mike Nesbit)

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