E-commerce Giant's Warehouses Explode, Small Traders Face Bankruptcy

The domino effect of the Russia-Ukraine war is now striking at the heart of the middle-class economy and small businesses in Russia. A wave of drone attacks targeting the logistics facilities of Russian e-commerce giant Wildberries has paralysed supply chains and triggered the threat of mass bankruptcies. One of those affected is Vasily Klimov, owner of a franchised Wildberries pick-up point in Moscow. In just three weeks, his business has been transformed from a profitable small enterprise into one that has collapsed. ‘Sales have fallen by about 50% over the past month because there are almost no incoming shipments. Last month we were truly loss-making,’ Klimov told Reuters. The primary cause is an intensive Ukrainian drone campaign that has struck at least 20 Wildberries warehouses across various regions of Russia since mid-July. Satellite imagery analysis shows more than 1.18 million square metres of warehousing—equivalent to over a fifth of Wildberries’ total capacity—has been severely damaged and burned. The strikes have destroyed stock belonging to tens of thousands of local traders and crippled package deliveries, slashing the average from 400 parcels per day to just 150, and sometimes to zero. As a result, more than 3,100 franchised Wildberries pick-up point locations are now being offloaded and listed for sale on local online marketplaces. The Ukrainian government has stated that targeting the e-commerce platform is intended to raise the cost of the war for Russian society, while also accusing Wildberries of helping to supply Moscow’s military logistics—an allegation the company and the Kremlin have firmly denied. However, the damage to Wildberries is undeniably having a massive impact on the overall Russian economy, as e-commerce platforms in the country manage transactions of goods and services equivalent to 8.5% of its total gross domestic product. This massive supply chain disruption has the potential to trigger a new surge in inflation. Economist Elina Ribakova from the Kyiv School of Economics believes the situation will complicate the Russian Central Bank’s efforts to loosen monetary policy and cut interest rates, which currently stand at 14%. Meanwhile, Russia’s banking sector is bracing for a spike in bad loans. Sberbank, the country’s largest bank, has indicated it will increase loan loss provisions as the credit quality of online sellers deteriorates. Around 300 companies have reportedly applied for debt restructuring. A source close to the Kremlin revealed that the small and medium-sized enterprise sector will bear the most severe impact. ‘There will be a wave of bankruptcies. No one has the funds of hundreds of billions of roubles to prop up all the traders right now. This is a very heavy blow to the economy,’ the source concluded.