India has the third-largest online shopper base globally; to overtake US in 1-2 yrs: Bain & Co

After months of careful spending amid the pandemic the Indian shopper has gradually loosened her purse strings. Calling the pandemic a “crucible moment” for online retail, a report by Bain and Company has stated that there has been an acceleration and robust growth, taking the market to $50 billion in 2022. The report added that India has the third-largest online shopper base globally, with 180-190 million shoppers in 2021. Not only that, the shopper base in India is climbing rapidly and is likely to overtake the US in the next 1-2 years, stated the report. India’s online shopper base is estimated to increase to 400-450 million by 2027.

Over the next five years, the e-retail market is estimated to grow to $150-170 billion, with a growth of 25-30 per cent annually. This will double the market penetration to 9-10 per cent.

The report added that India’s robust fundamentals supporting a continued boom in e-retail, its substantial online consumer base and retail market are driving this growth. Moreover, there is massive headroom for growth in terms of smartphone penetration (36 per cent in India vs 63 per cent in China and 76 per cent in the US) and affluence (~$2,000 per capita in India vs ~$12,000 in China and ~$69,000 in the US), which are likely to boost the growth further.

It said that the category mix of online purchases will also evolve with fashion, general merchandise categories (including personal care), and groceries that have the highest penetration headroom, driving growth and cumulatively accounting for two-thirds of the e-retail market by 2027. Historically it has been categories such as mobile phones, electronics, and appliances.  

Most of the shoppers are already in the digital funnel with 450-500 million using social media, while only 180-190 million shopped online in 2021. In 2021, 40-50 million new shoppers were added in the Indian retail market – mostly from Tier 3 or smaller cities. The addition of Gen Z shoppers also marked a change. They will also become a critical cohort in the future, the report added. Gen Z shoppers mostly purchase fashion as the first category online and at entry price points.

Multiple shopper cohorts – based on geography, income and age – are shopping online. Three of five shoppers belong to Tier 2 or smaller cities, while one of five belong to low-to-middle income segments. Also, one in three shoppers is Gen Z.

Alternative business models are also being explored by retailers to reach a wider audience and bridge the gaps in traditional commerce. Some of these models include social-led commerce, video/live commerce, direct-to-consumer commerce, and quick commerce. Social media players also tend to leverage their platform for online sales, for instance Instagram shops, short-form video platforms etc.

“Technology-led disruptions have tremendously enhanced the online shopper experience from discovery to purchase. These improvements range from innovative search mechanisms – voice, vernacular, and image-based search – to applications utilising augmented reality (AR), virtual reality (VR), and artificial intelligence (AI). Made-for-Bharat innovations such as voice- and vernacular-based search have continued to gain traction, with 5x growth in voice-search users and 3x growth in vernacular-search users over the past year,” the report said.

“There are distinct micro-segments of online shoppers emerging across geographies, income segments and ages that exhibit distinct shopping behavior online. For instance, shoppers from Tier-2 or smaller cities frequently use vernacular platform interfaces, low middle-income shoppers prefer free delivery over fast delivery, and shoppers belonging to the Gen Z age group (less than 25 years) use social media and image search to discover products online. Brands and e -retail platforms will continue to innovate on business models to curate experiences for each cohort,” says Arpan Sheth, Partner, Bain & Company.

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