India is showing similar levels of shopper penetration that China had eight years ago.

India’s e-commerce sector is showing signs of entering into ‘massification’ — the second phase of the growth trajectory that global e-retail has followed. Growing internet population coupled with cheap data, digital-first users and online penetration in mobiles and electronics are markers in line with global benchmarks that will push India towards 300-350 million online shoppers by 2025 from 100-110 million in 2020, according to a report by Bain & Company and Flipkart. This will also lead to nearly 30 per cent CAGR of gross merchandise value of the e-retail market, which is led by Amazon, Flipkart, Snapdeal, others, from $30 billion in FY20 to $100-120 billion by FY25 — around 4X growth.

“To win the next wave of online customers, it is critical to harness a strong ecosystem which will play a much larger role in influencing purchase decisions. Ecosystems attract a huge customer base, which in turn attracts retailers who want easy access to a critical mass of consumers. And customers gain a one-stop-shop for all their needs,” said Arpan Sheth, partner and Leader of Bain & Company’s AsiaPacific Technology, Vector and Advanced Analytics practices.

The first phase of online retail growth reflects on cautious early adoption by customers while the third phase sees an increase in annual transactions per customer showcasing growing stickiness, according to the report titled How India Shops Online. Currently, India’s retail market, which is worth $850 billion, is the fourth largest globally though largely unorganized. The online retail’s penetration is 3.4 per cent currently.

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The growth in the Indian online retail market and across the world also has Covid pandemic as an inflexion point as consumers shift occurs on the back of safety and convenience. Online retail in India already has access to over 95 per cent pin-codes in India that is likely to boost MSMEs sellers even as many of them have leveraged online retail to grow their business. “E-retail has enabled the creation of millions of jobs and empowered delivery personnel, mom-and-pop kirana stores and several small sellers,” the report added.

Driving growth, buyers from Tier-II and smaller towns contribute close to 50 per cent of all shoppers and three out of every five orders for online marketplaces. Such customers purchase similar categories of products as customers from metros or Tier-I cities with only a marginal difference in average selling price (ASP), the report noted. For instance, ASP of mobiles selling in Tier-II and smaller towns is Rs 9,258 – only 8 per cent lower than Rs 10,067 price in metros and Tier-I cities.

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Compared to China’s e-retail boom, India is showing similar levels of shopper penetration that China had eight years ago and grew from 18 per cent in 2012 to 46 per cent in 2019 on the back of lower data prices and improvement in infrastructure for online retail. India’s shopper penetration grew from 1 per cent in 2012 to 11 per cent in 2019. In terms of internet users, India trails China by 7 years. While China’s internet users grew from 41 per cent in 2012 to 57 per cent last year, India’s user base went up from 13 per cent to 41 per cent.