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Report
An insight into the e-retail landscape and the emerging trends shaping the market
By Arpan Sheth, Shyam Unnikrishnan, Manan Bhasin, and Abhishek Raj
Report
India’s e-retail market is estimated to scale to $57–$60 billion in 2023, adding $8–$12 billion annually since 2020. The market is estimated to grow by 17%–20% from 2022 to 2023, which is slower than the 25%–30% historic growth rate. The short-term dip was driven by inflationary pressures. This pinched the consumer wallet and eroded consumer sentiment, thereby deferring or reducing discretionary spending.
Despite slower than typical growth, online adoption grew steadily over the last year. However, there is still massive headroom for growth. Overall, online spending is only 5%–6% of total retail in India vs. 23%–24% in US and 35%+ in China. Three out of four trigger points for e-retail growth have played out in India: increased physical and digital access through cheaper data and logistics reach; enhanced affordability and convenience through lower logistics costs; and the emergence of digital ecosystems.
The fourth trigger point, affluence, is yet to be fully realized. Growth in GDP per capita will be critical to unlock e-retail growth over the next decade. Typically, when GDP per capita crosses the threshold of approximately $4,000, it drives a sharp increase in online spending per shopper and discretionary spending. In India, an estimated 60–70 million households will join the upper-middle- and upper-income cohorts, which in turn are likely to account for at least 85% of e-retail spending by 2028. Government initiatives such as the Open Network for Digital Commerce will further propel the growth of e-retail in India.
Thus, India’s e-retail market is expected to bounce back to 23%–25% growth levels and reach over $160 billion by 2028.
India’s annual transacting e-retail shopper base is estimated to scale to 230–250 million people in 2023. Over 100 million of these shoppers were added over the last three years.
Diverse consumer micro-segments have become more salient. Now, 7 out of 10 online shoppers reside in Tier 2+ cities, and a third of online shoppers are part of Gen Z (born in or after 1997). About a third of online shoppers come from low-income or low-middle-income cohorts.
Simultaneously, there is a growing base of mature shoppers. Over 100 million shoppers participated in e-retail in 2019. Shoppers that were onboarded in 2019 have doubled their engagement, frequency of purchases, and spending on digital platforms over the past three years.
In the coming decade, e-retail growth will be driven by adding new shoppers and by growing online spending per shopper. E-retail platforms are investing as much in retention (the core thesis behind digital ecosystems) as they are in new shopper acquisition (via value selection and voice/vernacular offerings).
India will need multiple models to build, scale, and serve the needs of this diverse shopper base, which has varying price sensitivities, service and speed expectations, and language requirements. For example, voice and vernacular offerings are popular among new shoppers from smaller cities. About 25%–30% of first-time shoppers used these offerings in 2022, and about 60%–70% of voice/ vernacular users hailed from Tier 3+ cities.
The seller ecosystem is also exploding to cater to these consumers. Twice as many sellers were added in 2022 compared to 2021. Two-thirds came from Tier 2+ cities, and three-fourths operate in the lifestyle, home, and electronics categories. Insurgent online-first brands have emerged as a fast-growing seller cohort, with more than threefold revenue growth from 2020 to 2022. These brands resonate especially with Gen Z consumers.
This dynamic landscape created an opportunity for e-retailers and startups to test and scale new and innovative business models. Four e-retail models—quick-commerce (Q-commerce), hyper-value commerce, inspiration-led commerce (live commerce), and fast fashion—are emerging, and are at different levels of maturity.
The e-retail industry has seen a growing emphasis on profitability in recent years. Multiple retailers, such as Pinduoduo, Coupang (South Korea), and Shopee (Southeast Asia), achieved positive EBITDA over the last two years.
Beyond continued improvement in fundamental business economics, e-retailers have amped up their focus on monetization and deployed five key monetization levers: advertising, seller services, fintech, externalization of services (e.g., logistics, cloud), and subscription-based loyalty programs. Interestingly, the core monetization engine for global platforms has been different. For example, fintech contributes around 45% of Mercado Libre’s revenues via Mercado Pago, whereas advertising and seller services accounts for around 50% of Alibaba’s revenues.
The amount of time platforms take to launch monetization levers has dropped drastically over the last decade. Younger e-retailers such as Noon in the Middle East and Shopee in Southeast Asia spent only 2–4 years to launch levers like “fulfilled by x” and advertising, whereas mature platforms such as Amazon.com and JD.com took 16–18 years.
In India, advertising-led monetization continues to be the most salient. Advertising spending by brands and sellers on e-retail platforms has grown four-fold in three years. Yet, there exists massive headroom. In India, e-retail only accounts for 15%–20% of digital ad spending, compared to 25%–30% in the US and 55%–60% in China. An increasing number of brands and sellers recognize the value of this medium.
Generative AI will fundamentally alter the e-retail experience. A series of high-impact use cases are emerging that will positively impact the shopper and seller journeys. E-retailers are looking at the technology to disrupt five areas: discovery, seller enablement, targeted marketing, customer support, and business efficiency.
Global e-retailers have adopted multiple use cases, from designing personalized advertising campaigns to using chatbots for faster customer service. Flipkart Group has been the torchbearer of generative AI applications in India’s e-retail space, with multiple live experiments. Most notable are end-to-end virtual shopping assistant “Flippi” by Flipkart and smart search tool “MyFashion GPT” by Myntra; these aim to make online shopping even more akin to the offline shopping experience.
Future generative AI applications hold immense potential in e-retail and could transform the shopper journey entirely. The technology can have a high impact on multi-modal consumer journeys, powered by individual users’ personal preferences.
E-retail has made an indelible impact on the country: it has democratized shopping, helped small and medium-sized business grow, and created scalable employment. The next chapter in India’s e-retail growth promises to be even more exhilarating, as the industry pushes boundaries and pioneers new frontiers.
The authors thank Sankalp Mehrotra (Vice President, Monetization), Sarah Gideon (Vice President, Corporate Affairs), Saptarshi Basu (Director, Analytics), Kanika Tiwari (Associate Director, Growth & Partnerships, Monetization), Sonia Parveen (Senior Manager, Corporate Affairs), Siddhant Singh (Senior Manager, Product Marketing, Ads), Mayank Thakur (Manager, Analytics), and other members of the Flipkart Analytics team; and Punit Parekh, Amandeep Gupta, Anubhav Garg, and Shubham Bansal from Bain & Company for their contributions to the insights in this report; and Bain & Company global partners for their expertise and input. The team would like to thank all the companies, executives, employees, and experts who shared their perspectives to develop this report, including Flipkart, for sharing valuable e-commerce insights.
The Flipkart Group is one of India’s leading digital commerce entities and includes group companies Flipkart, Myntra, Flipkart Wholesale, Flipkart Health+, and Cleartrip.
Started in 2007, Flipkart has enabled millions of sellers, merchants, and small businesses to participate in India’s digital commerce revolution. With a registered customer base of more than 500 million, Flipkart’s marketplace offers over 150 million products across 80+ categories. Today, there are over 14 lakh sellers on the platform, including Shopsy sellers. With a focus on empowering and delighting every Indian by delivering value through technology and innovation, Flipkart has created lakhs of jobs in the ecosystem while empowering generations of entrepreneurs and MSMEs. Flipkart is known for pioneering services such as Cash on Delivery, No Cost EMI and easy returns, which are customer-centric innovations that have made online shopping more accessible and affordable for millions of Indians.
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