X5 Retail Group N.V., Russia's largest retailer in terms of sales (LSE ticker: “FIVE”), today announced that it has launched a project to develop the Company s online platform with the goal of building Russias leading brand in Internet retailing.
X5 has entered into a joint venture agreement with experienced internet retailers and owners of online stores www.bolero.ru and www.003.ru. Bolero.ru and 003.ru are popular internet stores that have been successfully building their presence in the Russian E-commerce market for more than eight years. Bolero.ru specialises in books and entertainment media and is the second most popular online retail store among Russian Internet users a ccording to the Romir research firm. 003.ru is the leading online retailer for household appliances and electronics with the highest turnover in the category, according to the National Association of E-Trade Participants(NAUET). As per Google Analytics, in total, bolero.ru и 003.ru are visited by approximately 70,000 people per day. Based on September 2009 results, average daily number of purchases at both stores was 590, while average purchase size totalled RUR 3,385 (over USD 100).
The new joint venture, IT Business, has been created to develop X5 s Internet retailing platform. According to the agreement, X5‘s partners in this venture contributed rights to the above Internet properties, as well as their key employees and essential business infrastructure including IT equipment, call-centre, software, databases and leasing rights to a distribution centre. X5 purchased a 51% interest in the new company for a total consideration of USD 1 million. X5 has an option to purchase the remaining 49% within five years, at a price to be determined based on future operational and financial performance using an agreed formula.
After becoming part of IT Business, bolero.ru and 003.ru stores will continue to operate under their existing brands. In 2010 X5 will decide on a launch of a new brand in Russian e-commerce.
X5 Retail Group CEO Lev Khasis commented:
"Internet retailing is still in its infancy in Russia, and X5 has the opportunity to develop the leading online retail brand, leveraging our store network, distribution infrastructure and marketing capabilities to drive the growth of E-commerce.”
“Russian E-commerce development is limited by many factors, including the immaturity of payment systems, consumer mistrust of online payments, and the general under-development of logistics infrastructure and courier and postal services. As the leader in Russian retail, X5 is in a unique position to address these issues. In addition to Internet payments and direct home deliveries that are not always suitable for Russian consumers, we plan to utilize our store network to provide customers with convenient locations for making payment s or picking up their purchases. Our marketing capabilities give us a huge competitive edge - X5 can market online retailing services to the 3 million customers who visit our stores every day as majority of them are potential Internet shoppers."
In conclusion, we see significant opportunities to leverage X5 s bricks-and-mortar retail infrastructure to drive synergies with the online channel, in purchasing, logistics, advertising and other parts of our business, which supports our confidence in the success of this project."
X5's Director for M&A and Business Development Andrei Gusev added:
"Thanks to the joint venture agreement, we will launch this project not from scratch, but rather using the experience of successful and well-known internet retailers. Deep knowledge of E-commerce by our partners combined with customer recognition of www.bolero.ru and www.003.ru provide us with a strong platform for the development of X5 s online business.”
X5 Retail Group N.V. is Russia's largest retailer in terms of sales. The Company was created as a result of a merger between Pyaterochka (soft discounter chain) and Perekrestok (supermarket chain) on 18 May 2006. In June 2008, X5 acquired Karusel hypermarket chain and substantially strengthened its position in hypermarket format.
As at 30 September 2009, X5 had 1,217 Company-managed stores located in Moscow, St. Petersburg and other regions of European Russia, Urals and Ukraine, including 952 soft discount stores, 210 supermarkets and 55 hypermarkets.
As at 30 September 2009, X5 s franchisees operated 586 stores across Russia.
For the full year 2008, X5 s net sales including acquired Karusel business on a pro-forma basis totaled USD 8,892 mln, EBITDA reached USD 803 mln, and net profit adjusted for non-cash goodwill impairment charge amounted to USD 112 mln.
For the first half 2009 X5 s net sales totaled USD 3,978 mln, EBITDA reached USD 347 mln, and net profit amounted to USD 48 mln. For the nine months 2009, net retail sales totaled USD 6,053 mln.
X5 Shareholder structure is as follows: Alfa Group – 47.9%, founders of Pyaterochka – 23.1%, X5 Management – 1.9%, treasury shares – 0.1%, free float – 27.0%.