E-Retail has particularly been a boon throughout the Coronavirus (Covid-19) pandemic after the setbacks caused by widespread disruption (for consumers and small businesses) and loss of jobs. In the future, the e-retail market is likely to grow to $120–140 billion by FY26, increasing at approximately 25 per cent–30 per cent per annum over the next 5 years, as per the report ‘How India Shops Online 2021’ by Bain & Company in association with Flipkart.
The growth would be led by smaller towns that account for four out of five new shoppers. In addition to small towns, women and older shoppers have gained prominence in the online shopper base over the last year, and this trend is expected to continue.
“Small-town India will fuel this growth, accounting for four of every five new shoppers,” informed the report. “During the Covid-19 pandemic, reverse migration from metro cities further accelerated growth in smaller towns. In addition to small towns, women and older shoppers continue to increase the e-retail base.”
The financial year ending March 2021 was one of contrasts for India’s retail market. The overall retail market shrank by 5 per cent, along with a 7.3 per cent contraction in gross domestic product (GDP). Nevertheless, the Indian e-retail market saw a 25 per cent growth despite a two-month national lockdown and multiple prolonged disruptions in regional pockets over the year, as per the report.
“The pandemic was a watershed moment for India’s e-retail market, driving a 12-month acceleration in e-retail penetration, which was at 4.6 per cent by end of FY21,” mentioned in the report.
The acceleration was even higher in the top 8 metro cities, where online shopping is more common: one in three people shopped online at least once last year in the top 8 metro cities.
This Covid-19 induced inflection in e-retail is a global phenomenon driven by an improved consumer need for safety and convenience, especially during prolonged stay-at-home periods. This has also played out in India wherein e-retailers have been the lifeline for both consumers and sellers—enabling access to essential commodities and hygiene products to millions of households during the lockdown, and providing business avenues to thousands of sellers.
“We expect the surge in penetration to sustain post stabilisation, as a similar trend has been seen globally,” satated the report.
E-retail categories have seen disparate growth and recovery patterns during and post the Covid-19 pandemic. First, select categories (e.g., mobiles, electronics, appliances) saw a massive one-time spurt that then cooled off due to longer replacement cycles and recovery of offline retail. These categories did not see as substantial a jump during the second wave over April–May 2021.
Second, frequent-use categories (e.g., groceries, household, personal care) saw rapid growth and are likely to continue seeing accelerated growth post-pandemic. These habit-forming categories, which have a high share of repeat purchases online, also benefited from a concerted push to accelerate digital sales by leading brands that were not as invested in this channel pre–Covid-19. Third, discretionary and out-of-home spending categories (e.g., fashion, travel products) saw relatively slower growth during the pandemic.
“We expect growth rates in e-retail spending for these categories to rebound to pre-pandemic levels soon and then follow long-term growth trajectories,” stated the report.
E-Retail continues to advantage millions of shoppers across India, driving ubiquitous access and heightened convenience. It has democratised shopping by providing access to more than 95 per cent of India’s pin codes. It has allowed Bharat’s small sellers and micro-entrepreneurs, broken go-to market barriers for incumbent and insurgent brands, and provided employment to millions.
India is one of the largest consumer economies internationally. The $810 billion Indian retail market is the fourth largest in the world and is quickly evolving to include a sizeable e-retail component. India is home to the third-largest online shopper base of 140 million, only behind China and the US. Nevertheless, the market is still massively untapped and there is immediate potential to reach India’s large Internet user base of approximately 625–675 million people.
As e-retail accessibility continues to expand, a new wave of shoppers will come online. The majority of these future online shoppers are likely already in the digital funnel—watching videos and using chat and social media apps, but e-retailers would need to accelerate their transition to commerce. This consists a deep understanding of their needs and interaction patterns with brands and platforms. The Bain & Company report envisions six mega-trends playing out in the India e-retail ecosystem.
This includes digital ecosystems. The Covid-19 pandemic offered a strong stimulus to all digital services (e.g., payments, health tech, ed tech). Large e-retailers have started creating scale ecosystems, serving as a one-stop-shop for digital and retail needs. These ecosystems use sticky offerings such as video streaming and gaming to drive consumer engagement and capture a larger share of consumer time and spending.
Voice and vernacular is core to attracting the next generation of consumers. Use of voice-assistant apps doubled to approximately 5–6 million monthly users in 2021 (average until May). Web pages were translated to vernacular languages approximately 50 per cent more in 2020 compared with 2019. Use of vernacular-language apps such as ShareChat and Daily Hunt continued to accelerate through the pandemic
There is also video commerce: The video-watching user base expanded greatly during the pandemic and grew by 25 per cent in India in the past year alone, increasing to 350–400 million users. Hundreds of thousands of creators would assist propel livestreaming and video-enabled commerce significantly in the coming years. Multiple livestreaming commerce start-ups have already emerged in India and are growing rapidly. In China, livestreaming commerce accounts for 9 per cent–10 per cent of overall GMV (gross merchandise value).
Peer and community influence would play a much more significant role for the next wave of online shoppers. Social commerce GMV (approximately $1.5–2 billion in FY20) could grow at a 55 per cent–60 per cent compound annual growth rate (CAGR) over FY20–25, with the potential to empower 40 million small businesses and turbocharge women entrepreneurs. This would further democratise e-retail, with three in five social shoppers coming from tier-2 and smaller towns.
There is also the rise of direct-to-consumer (D2C): Brands are looking for more ways to directly engage with consumers and give them a differentiated experience. Accelerated by the pandemic, there has been an explosion in D2C brands in India—both set up and insurgent (nearly doubled from 2 years ago).
Omnichannel commerce is also increasing. Consumers are increasingly switching between offline and online touchpoints across their purchase journey. Offline retailers are also progressively more going online and are partnering with e-retailers to offer consumers a seamless experience.