The Indian e-retail evolution

The $850 billion Indian retail market is the fourth largest in the world and is largely unorganised. This market is on the cusp of a transformation, led by the emergence of e-retail and its growing influence on Indian shoppers.

India’s e-retail industry has seen an upsurge over the past five years, and there is significant headroom for further growth. Based on insights into the global evolution of e-retail, we expect Indian e-retail to reach massive scale—spurred by cheap, ubiquitous mobile data enabling nearly 1 billion Internet users by 2030, growing online spending by digital natives; and supply-side innovations such as vernacular-based user interfaces, voice and visual search. We expect fashion categories to play a critical role in acquiring online customers, similar to the mature markets of the US and China. The Indian e-retail market is primed to reach nearly 300 million to 350 million shoppers over the next five years, propelling the online gross merchandise value to $100 billion to 120 billion by 2025.

The Covid-19 pandemic exacerbated consumers’ need for safety and convenience, leading to an inflection in global e-commerce penetration—and even in India, online is gaining salience. We expect India’s e-commerce growth story to be inclusive—one that empowers both sellers and consumers. For consumers, it will provide convenient access to a wide assortment of products across all geographies and income segments. For sellers (kiranas, artisans, traders and homemakers), it will provide an unprecedented impetus by establishing easy access to a large base of customers across the country and keeping their stores running 24-7. With access to more than 95% of India’s PIN codes, e-retail has already democratised the shopping landscape, empowering Bharat’s small sellers while breaking go-to-market barriers for insurgent and incumbent brands. E-retail has benefitted millions of customers across India, exponentially increasing merchandise choice and price transparency while augmenting access and convenience.

India’s online-shopping landscape comprises a diverse mix of city tiers and income ranges, forming a microcosm of the pan-Indian retail market. Online shoppers in tier-2 cities and smaller municipalities make up nearly half of all shoppers and contribute to three out of every five orders for leading e-retail platforms. These customers from tier-2 and smaller cities buy similar categories of products as customers from metropolises or tier-1 cities with only a marginal difference in average selling price.

Over the past few years, India has experienced a surge in small enterprises and homemakers scaling their businesses by taking them online. E-retail has enabled the creation of millions of jobs and empowered delivery personnel, mom-and-pop kirana stores and several small sellers.

Not only has e-retail broken go-to-market barriers for new brands but it has also helped traditional brands accelerate new product launches. Digitally born brands have scaled rapidly and are being built more efficiently. Large incumbents have also leveraged the online channel to launch multiple online-first brands, get real-time customer feedback and use those learnings to improve the effectiveness of their national offline launches.

Online shopping journey

Brand success in e-retail hinges on a deep understanding of how shoppers discover and decide on products online. Our analysis across categories provides useful and interesting insights into the nuances of the online shopping behaviour of Indian customers.

• Nine minutes is all you have: Over the past year, consumer engagement with online platforms has increased, but a potential shopper spends less than nine minutes per visit on an e-retail platform.
• Pictures speak louder than words: One in two visitors browse the image gallery, and only 1 in 15 click the detailed product description. Brands and sellers should invest in images and videos as well as pithy, high-impact product highlights.
• Product discovery on e-retail platforms: Consumers are increasingly opting for e-retail platforms for product searches—nearly one in three in India and almost two in three in the US.
• Vernacular searches are gaining popularity: For example, “parda” was one of the top three searches in curtains.
• Browse, browse, browse: Online shoppers browse more than 20 product pages before making a purchase. For some categories, such as mobile phones and women’s ethnic wear, consumers browse about 50 to 60 product pages before making a purchase.
• Different horses, different courses: Search attributes and preferences vary significantly across categories and consumers. Online shopping data provides interesting insights into specific product preferences of Indian shoppers at a granular level.

Future of online shopping

As Indian e-retail enters the “massification” phase, online platforms are innovating to onboard the next hundreds of millions of shoppers. The next wave of shoppers will have different needs and will interact differently than the current set of online shoppers. We see four key trends going forward.

• Voice and vernacular: The Indian vernacular language Internet user base, which is expected to reach more than 500 million users by 2021 (vs. 200 million for the English-speaking Internet user base in India), increasingly prefers voice search and vernacular-based user interfaces. Several vernacular apps, such as ShareChat, TikTok and Helo, have garnered upwards of 50 million users each.
• Visual and video: Video content consumption in tier-2 and smaller cities in India grew more than four times over just the past year. Visual search tools, livestreaming sessions, influencer videos and the like  are gaining significant traction.
• Social shopping: For the next wave of online customers, peers and communities will play a much larger role in influencing purchase decisions than they do for the current online shopping base. Over the past five years, we have seen more than 50 private equity and venture capital deals in India focussed on social commerce. Pinduoduo is a great example of a successfully scaled social shopping enterprise in China that built a strong consumer base of more than 450 million monthly shoppers within a span of just four years, a lot of them are women and from small towns.
• Digital ecosystems: As e-retail evolves, platforms are trying to increase their number of consumer touchpoints to gain greater customer mindshare. Top e-retail companies have started to develop ecosystems that combine their core e-retail business with sticky customer services, such as video streaming, gaming, booking and payments, in a single platform or application. Ecosystems attract a huge customer base, which in turn attracts retailers that want easy access to a critical mass of consumers. And customers gain a one-stop shop for all their needs.