India To Beat US To Become Second Largest Online Shopper Base

The Indian ecommerce market had a size of $40 Bn in 2021 which is projected to increase to $50 Bn in the ongoing year (2022). The market is further anticipated to register annual growth of 25-30% to reach a size of $150-$170 Bn by 2027, according to a report.

The report named ‘How India Shops Online 2022’ was prepared by Bain & Company in association with ecommerce major Flipkart. It said that the growth of the country’s ecommerce market is supported by various factors including a large affluent consumer base, reduced shipment costs, and growing penetration of internet and smartphones.

Besides, rapidly expanding seller base and developing logistics infra are also contributing to the growth of the ecommerce space.

Three categories – fashion, grocery, general merchandise – would shore up ecommerce growth and would also capture nearly two-thirds of the Indian ecommerce market by 2027. 

“The mix of categories purchased online will change. Fashion, general merchandise, and grocery, which have the highest penetration headroom vs. mature e-retail markets, will grow disproportionately and account for two-thirds of the e-retail market,” the report said.

India had 180-190 Mn online shoppers in 2021, and the country’s ecommerce market has the potential to surpass the US to become the second-largest shopper base in the next 1-2 years, it added.

 

The report also said that the Indian ecommerce space added nearly 40-50 Mn new online shoppers in 2021, and the country’s ecommerce customer base will expand to 400-450 Mn by 2027. Currently, India has the third-largest online shopper base in the world, behind China and the US. 

The report said that fashion and low-priced items play an important role in onboarding new shoppers on the ecommerce market, adding that over 40% of new shoppers procured fashion items during their first purchase.

“The average selling price (ASP) for items procured by these new shoppers was 20% lower than the existing online shoppers,” it said. 

Ecommerce penetration was the highest in India in the mobile and electronics category (nearly 30%), followed by fashion and general merchandise categories at around 10% each. While the home and furniture category had 5% penetration, it was less than 1% for the grocery category.

The report also estimated that the ecommerce penetration in India would double to around 9-10% by 2027 from 4.5% in 2021.

New Shoppers, Festive Sales & Other Trends 

Talking about the new shoppers added in 2021, the report said that over 60% of them were based in Tier-3 and smaller cities. Besides, one in every three new shoppers belonged to the Gen Z generation, those below 25 years of age.

On the annual festive sales held by ecommerce platforms in 2021, the report said that over 3x new online shoppers were onboarded per day during these sales as compared to the rest of 2021.

 

In 2021, over 25% of monthly online shoppers used ecommerce platforms on a daily basis as compared to 18-20% shoppers in 2019.  

It also highlighted the sharp increase in the number of online sellers listed on ecommerce platforms, saying sellers rose 35% year-on-year (YoY) in 2021. Nearly 40% of the new sellers belonged to Tier-2 and smaller cities.

How Pandemic Reshaped The India Ecommerce Space 

Calling the Covid-19 pandemic a crucible moment for the ecommerce market in India, the report said that it introduced hypergrowth and a sharp increase in penetration. Besides, the pandemic also began the Phase 3.0 of the evolution of the market, leading to innovations.

“Over the last 12–18 months, three distinct hallmarks of Phase 3.0 (post 2020) have emerged. These hallmarks are the emergence of shopper micro-segments; the introduction of novel business models; and the use of technology to deliver a bespoke, life-like customer experience to shoppers,” the report stated.

Post-2020, ecommerce platforms have to meet the needs of distinct groups of shoppers coming from diverse geographies, having distinct income and age groups. Each of these groups have different shopping behaviours, such as Gen Z shoppers buy products from their shopping wish lists before adding them to the shopping cart. 

Besides, the pandemic also gave birth to a set of new business models such as social-led commerce platforms, video commerce platforms, D2C commerce platforms, and quick commerce platforms.

India’s ecommerce market is currently dominated by Flipkart and Amazon. However, startups like Meesho like also competing hard, while the entry of deep-pocketed conglomerates like Reliance and Tata Group in the segment has further intensified the competition.

Besides, India has also seen a sharp rise in the number of D2C brands over the last few years. The country is home to over 50,000 digital-first brands which have raised a total funding of $4.4 Bn till date, as per an Inc42 report.

The ecommerce platforms in the country saw total sales of $5.7 Bn during the first week of their festive season sales in 2022, according to estimates released by consultancy firm Redseer.