The first phase of India’s e-commerce growth was primarily driven by mobile phones and electronics, with a major chunk of sales in this category moving online for good. But e-commerce 2.0, which started taking shape since the pandemic with millions of first-time users taking to online shopping, is creating a winner out of ‘fashion & apparel’.
This category is estimated to account for the highest share of India’s consumer spending online by 2025, reveals a study by BCG and Matrix Partners. In 2021, ‘fashion & apparel’ contributed 20 per cent to India’s overall online retail spends of $50-55 billion. Over the next 2-3 years, it is expected to drive the highest share (25 per cent) of total online spends of $140-160 billion. The growth of horizontal e-commerce platforms like Meesho, which drives sales of low-cost fashion items in Tier 2+ cities, coupled with the mushrooming of new, fashion-focused offerings like AJIO, Tata Cliq, Nykaa Fashion, etc. besides market leader Myntra, has expanded this segment substantially.
Interestingly, ‘fashion & apparel’ as a category is also poised to displace ‘mobile phones’ from the top spot, with the latter’s consumer wallet share projected to decline from 32 per cent in 2021 to 23 per cent in 2025, according to the BCG-Matrix report.
Other categories that will grow their share of online spends are beauty and personal care (BPC), food & beverages, FMCG, furniture and décor, and petcare. “Consumers are seeking quicker gratification with shorter delivery options, leading to the emergence of Q-commerce, which has rapidly increased to 25–30 per cent of the overall online grocery market,” the report stated.
Additionally, online marketplaces are now surpassing search engines as the new search sites “with 35–40 per cent consumers choosing marketplaces for searches in select user categories such as electronics, fashion, mobile, food & FMCG and beauty and personal care”, per the report.
With the pandemic having accelerated digital adoption, India could potentially have 350-400 million online shoppers by 2025, making it one of the largest e-commerce markets in the world. Other significant enablers in this growth story have been the democratisation of digital payments and a far more spread-out logistics infrastructure that now covers nearly 95 per cent of India’s pincodes.
Siddharth Agarwal, Principal at Matrix Partners India, said: “In the next 5-10 years, India's economy is projected to grow by $3.5 trillion, which is equivalent to the amount added since its independence 75 years ago. This growth is expected to result in a remarkable surge in per-capita income, leading to an increase in discretionary spending that has not been witnessed in the past.”
India’s consumer ‘techade’ may have just begun. “New online shoppers are not the same as existing ones – they are older, more women, lower income and from smaller towns. This is both an opportunity and a challenge as entrepreneurs and leaders innovate on business models to serve the new consumer,” added Parul Bajaj, MD and Partner, BCG.