Investors

Ulmart A Case for Creative Disruption

Since the beginning of e-retail, as it was conceived by Jeff Bezos, the CEO of Amazon, with the sale of books online, success in “e-commerce” has been constructed on the following “pillars:”

1)     Home (last-mile) delivery

2)     Rapid expansion of the online catalogue

3)     Extremely high rates of fulfillment

4)     Best price

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The goal of the 4-PILLAR APPROACH is to ensure customers get the highest rate of fulfillment as conveniently as possible.

When I need something, it will be available, accessible and at my door-step within a day or two—if not sooner! And, the price will be a perfect balance between value of the good and services offered—it will be JUST RIGHT.

In a nutshell, it can be said that all four of these pillars contradict one another and actually DECREASE THE LEVEL OF FULFILLMENT. Delivering to one home across the street from the warehouse an endless amount of items is easy—and, really, price can be kept low.

Trying to deliver anything (which is everything) to anyone, anywhere while maintaining competitive prices puts huge strains on the supply-chains and the P&L’s of most companies: How can a company make money if its chief goal is to satisfy the every whim of nearly 6 billion consumers?

Many can’t and this is why companies fail; or, while succeeding to grow sales, many still are unable to achieve dynamic profitability.

The belief that e-commerce businesses can only succeed when applying the 4-PILLAR APPROACH, in a sense, squelches innovation. It leads to a sea of struggling but very customer-friendly companies with disgruntled and riotous shareholders. And, eventually, even the customers get angry because they ALWAYS EXPECT more convenience and faster fulfillment forcing companies into strategic dead ends.

Stepping out of the box

Russia is a country of logistical hurdles. This fact has prevented many a successful business from taking control of their respective sectors. The Russian postal system, because of the existing logistical hurdles, still suffers many of the problems it did 200 years ago.

And due to these logistical complications, Ulmart’s business model propels the company to put logistics into the hands of the consumers. Ulmart’s model can be summed up as follows:

1) Strive for the highest possible rates of fulfillment

2) Offer varied and needed items for sale to consumers

3) Good prices but not necessarily the not the lowest

And so, while not promising too much in terms of the fastest home delivery—to anyplace, anywhere, anytime—Ulmart has managed to create a sound infrastructure that guarantees still the highest rates of fulfillment in the industry.

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And due to these logistical complications, Ulmart’s business model propels the company to put logistics into the hands of the consumers. Ulmart’s model can be summed up as follows:

1) Strive for the highest possible rates of fulfillment

2) Offer varied and needed items for sale to consumers

3) Good prices but not necessarily the not the lowest

And so, while not promising too much in terms of the fastest home delivery—to anyplace, anywhere, anytime—Ulmart has managed to create a sound infrastructure that guarantees still the highest rates of fulfillment in the industry.

Expanding Online catalogue tests the modelhow we conquer segments of the market

As Ulmart’s success has grows and the logistical infrastructure expands to serve ever larger portions of the country, the model continues to demonstrate it can handle an ever-increasing amount of items for sale.

When the decision has been made that a new product for sale in Russia is ready to be added to the online catalogue, the good in question is rolled out slowly in one city or region--and then company analysts and marketers watch and wait. When local consumers take a liking to the offering and sales begin to show rapid growth, it is added to the nationwide infrastructure through a national rollout.

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Thanks to the potency of the Ulmart “logistical infrastructure” which permits for nearly immediate fulfillment, Ulmart quickly becomes the best-selling retailer of many new products. Fulfillment times are as follows:

1) If picked up in the URBAN FULFILLMENT CENTER (UFC): 7-10 minutes

2) If pick-up is at one of the 400 (and increasing everyday) PICK-UP POINTS:Next day (sometimes same day)

3) If the last-mile option is chosen: As fast as two hours or between 1 and 2 days (depending on location)

An additional aspect that makes the Ulmart model so unique is that the customer knows the whereabouts of the product before it is purchased; this level of transparency permits the consumer to fully PLAN and PREDICT when the item can be picked-up—NEARLY PERFECT FULFILLMENT. Who hasn’t ordered an item with a competitor online retailer and when promised delivery in 2-3 days had to wait 10 or more because the product was either out of stock or located in a fulfillment center out of the country and so forced to wait for custom’s clearing?

The Keys to the Ulmart Disruptive Model

The keys to this model are few but quite significant:

1)    AVOID THE FALSE POSITIVE--Do not build your business around the last-mile ever hoping to make customers happy and so gaining their loyalty—there will ALWAYS be screw-ups in the fulfillment of this promise and customers will actually become less happy and less loyal! Obsession with the LAST-MILE is a FALSE POSITIVE.

2)    ACCESSIBILITY--Build the fulfillment infrastructure so it is accessible to the consumer offering access to the ever-expanding online catalogue thereby almost guaranteeing not just planned-purchases but even spontaneous ones like many, offline retailers enjoy.

3)    TRANSPARENCY--Always be honest with the customer—show the shopper where the chosen item is, how much it costs and when it can be picked up. Let the shopper make the choice.

4)    SELL WHAT PEOPLE WANT--Gradual and targeted online catalogue expansion has proven to be a very successful strategy for Ulmart. Don’t take big risks with untested items; let others blaze the trail and then Ulmart will swarm it via it LAYERED LOGISTICAL APPROACH (LLA): a) urban/suburban fulfillment center, b) pick-up point (Outpost) and, c) last-mile (home delivery).

If you have any other questions about our model or would like a to visit us, please feel free to contact me and we will gladly accommodate your needs,

Brian Kean
Director of Communications and Investor Relations

Tel. +7 (812) 336 37 77, ext.: 4575
kin.b.p@ulmart.ru