E-retail in India is expected to scale beyond $160 billion in value by 2028, said a report released by Bain & Company in collaboration with Flipkart. The market, it said, has experienced strong growth post-pandemic, with an estimated value of $57–$60 billion in 2023. This represents an annual addition of $8-$12 billion since 2020. “The e-retail market is poised to grow in the coming years, with online spending currently only 5–6 per cent of total retail spending in India vs 23–24 per cent in the US and +35 per cent in China, indicating massive headroom for growth,” according to the fourth (2023) edition of How India Shops Online, released by Bain & Company in collaboration with Flipkart.

Even as the online channel grows, the offline channel will continue to be crucial. Majority of India’s retail spend (94–95 per cent) continues to be offline, with General Trade accounting for 87 per cent of the overall retail spend. While the scale retailers are growing offline presence, online-first insurgents, it added, are adopting omnichannel strategies to grow scale.

“Long-term fundamentals of India’s e-retail industry, including affordable data, improved logistics and fintech infrastructure and strong digital consumer ecosystems remain intact, and the market is expected to rebound to 23–25 per cent growth levels, surging beyond $160 billion by 2028,” said Arpan Sheth, Partner and Global Leader of Bain’s Innovation & Design Capability Area. In India, around 240 million shoppers are expected to participate in e-retail in 2023, with headroom to grow given more than 60 per cent internet users are not shopping online vs only around 20 per cent in US and China.

Further, the report said that an evolving consumer landscape highlights the importance of catering to diverse micro-segments. Currently, 7 out of 10 online shoppers reside in tier II+ cities, and a third of online shoppers are a part of Gen Z. Furthermore, about a third of online shoppers come from low-income or low-middle-income cohorts. “To effectively build, scale, and serve this diverse shopper base, multiple models are being developed, for example voice and vernacular offerings are popular among new shoppers from smaller cities—about 25–30 per cent of first-time shoppers used these offerings at least once in 2022, and 60–70 per cent voice/vernacular shoppers hailed from tier III+ cities in 2022,” it said.

Meanwhile, the seller ecosystem in India is also expanding rapidly, with twice as many sellers added in 2022 compared to the previous year. Around two-third of these new sellers came from tier II+ cities and around three-fourth operate in lifestyle, home, and electronics categories. More than half of the total seller base hails from 7 cities, namely Delhi NCR, Surat, Jaipur, Mumbai, Bengaluru, Hyderabad, and Kolkata.

New business models

The e-retail industry in India is witnessing the emergence of new business models to cater to consumer needs. These include quick-commerce (Q-commerce) platforms, hyper-value commerce, inspiration-led commerce (live commerce), and fast fashion. “Q-commerce platforms are revolutionizing the way consumers shop for their everyday needs, providing unparalleled hyper-convenience and lightning-fast delivery. Indian players have exhibited promising results in this space. Over the past year, Q-commerce orders have doubled, accounting for 40–50 per cent of India’s e-grocery spend,” said Shyam Unnikrishnan, Partner and leading member of the Consumer Products & Retail practice, Bain & Company. This phenomenon is currently concentrated in metro and tier-I cities, with the top 10 cities contributing to approximately 80 per cent of the total orders.

“Furthermore, hyper-value platforms have gained attention by providing unbranded assortment at incredibly low prices. In India, the hyper-value sector’s share of overall e-retail grew five-fold between 2020 and 2022, making it particularly popular among shoppers from tier II+ cities (which account for 70–80 per cent of shoppers) and low or low-middle-income households,” added Shyam Unnikrishnan.

Inspiration-led commerce, also known as live commerce, has seen rapid growth in Southeast Asian markets, accounting for about 15 per cent of gross merchandise value (GMV) in 2022. Fast fashion market is nascent but expected to grow at 30–35 per cent per annum between 2022 and 2027.

Key monetization levers for e-retailers

Beyond continued improvement in business economics, e-retailers have amped up their focus on five key monetization levers: advertising, seller services, fin-tech, externalisation of services and subscription-based loyalty programs. Advertising-led monetization is growing disproportionately in India.

“Retail media is the third big wave in digital after search and social across geographies. Both incumbent and insurgent brands/sellers use retail media to kickstart their growth flywheels. Advertising spends on e-retail platforms have quadrupled in just three years. Advertisers use platforms like Flipkart to get discovered, to engage and to retain their customers. Drawing on a deep understanding of customer journeys – from discovery to purchase – sellers and brands get incrementality and measurability. Despite the rapid growth, the headroom to grow is still tremendous. Retail media spends are only 15–20 per cent of digital Ad expenditure in India, compared to 25–30 per cent in the US and 55–60 per cent in China,” said Sankalp Mehrotra, Vice President of Monetization, Flipkart.