Rising customers from smaller towns boost India e-retail market

Social commerce could potentially democratise e-retail in smaller towns.

A rise in customers from smaller towns will boost India’s e-retail market, which is expected to rise 25% to 30% per annum over the next five years to hit $120b to $140b by FY 2026, according to a report from Bain.

Small-town India now accounts for four of every five new shoppers, the report found, as reverse migration from metro cities during the pandemic further accelerated growth in these areas.

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, the report stated.

As firms look to out-innovate each other to win this next generation of online shoppers, Bain is expecting six mega-trends playing out in the India e-retail ecosystem.

First, peer and community influence will play a much more significant role for the next wave of online shoppers. Social commerce general merchandise value (GMV) could grow at a 55%–60% compound annual growth rate over the five years.

This could potentially empower 40 million small businesses and turbocharge women entrepreneurs. “This will further democratise e-retail, with three in five social shoppers coming from tier-2/smaller towns,” Bain said.

Second, the pandemic provided a strong stimulus to all digital services, and large e-retailers have launched 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,” Bain said.

Third, the use of voice-assistant apps doubled to around 5 million to 6 million monthly users in the first five months of 2021. Web pages were translated to vernacular languages about 50% more in 2020 compared with 2019, the report noted.

Fourth, the video-watching user base grew by 25% in India in the past year alone to 350 million to 400 million users during the pandemic, and hundreds of thousands of creators are expected to propel livestreaming and video-enabled commerce 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%–10% of overall GMV,” the report stated.

Fifth, brands are looking for more ways to directly engage with consumers and give them a differentiated experience, causing an explosion in direct-to-consumer brands in India that nearly doubled from two years ago amid the pandemic.

Lastly, consumers are switching more between offline and online touchpoints across their purchase journey. Offline retailers are also going online more and are partnering with e-retailers to offer consumers a seamless experience, the report found.

“E-retailers will need to accelerate their transition to commerce. This involves a deep understanding of their needs and interaction patterns with brands and platforms,” Bain said.