Digital Commerce Thrives Or E-tail's Mega Moment
The Indian ecommerce landscape has witnessed a remarkable surge, driven by a confluence of factors and marked by significant developments and trends that have fundamentally reshaped its trajectory. The number of annual transacting users has jumped 15-fold to touch 230 million this year. The upcoming festive season is expected to see a minimum of 140 million shoppers doing transactions online. The ecommerce players could see their festive season sales grow up to 20 per cent to over Rs 90,000 crore this year as a result of consumer spending gradually normalising after several quarters of tepid growth in the sector and better margins due to rising ticket sizes of purchases and higher ad spends by brands.
Angshuman Bhattacharya, National Leader, Consumer Product and Retail, EY India points out that 2023 was slow for consumer internet businesses, driven by a lacklustre demand compounded by a cautious funding environment. But things are changing now. “The second half of FY24 promises to be better in terms of consumer spending,” says Bhattacharya, adding, “The pure-play ecommerce marketplaces are expected to see a continued run especially being fuelled by Tier-2 customers. “The penetration of ecommerce in various categories range from sub-5 per cent in staples and mature FMCG products to 40 per cent in metro-centric products. Ecommerce players with a Tier-2 expansionary focus will see greater growth unlocked,” Bhattacharya adds.
Agrees Anand Ramanathan, Partner, Consumer Industry Leader, Consulting, Deloitte India. High growth in festive season is expected to be driven by Tier-2 and Tier-3 towns that are expected to drive significant growth for ecommerce players, he says. "No-cost EMI and ‘buy now and pay later’ are gaining traction and would significantly contribute to ecommerce growth. With higher inflation, premium/ luxury segments are expected to outperform the mass product segments," Ramanathan adds.
Nikhil Sethi, Partner, Business Consulting, KPMG in India cites another important reason for the massive growth of ecommerce. “Ecommerce has been aided by a shift of leading players to support local languages, including Hindi, Tamil, etc. to make their platforms more appealing to a wider consumer base. Regional localisation, augmentation of fulfilment centres and festive season offers catering to the regional consumer will go a long way in having the desired effect this year,” Sethi adds.
Resilient Growth
The ecommerce sector in India has shown notable resilience and growth in recent times. According to the India Ecommerce Index 2023 report by Unicommerce, the fiscal year 2023 recorded substantial year-over-year growth, with a remarkable 26.2 per cent surge in order volumes. This surge has been primarily propelled by a robust 23.5 per cent increase in the annual Gross Merchandise Volume (GMV) compared to the preceding financial year.
This impressive growth is underpinned by several key factors contributing to the flourishing Indian ecommerce ecosystem. A pivotal driver of this growth has
been the relentless investments made in logistics and supply chain infrastructure. Amazon India and Flipkart, industry giants, have significantly enhanced their last-mile delivery capabilities, even reaching remote areas, which has been instrumental in expanding their customer base.
Moreover, diversification into various ecommerce verticals has been instrumental in driving growth. Amazon India, for instance, expanded its product catalog, ranging from electronics to groceries. The acquisition of a significant stake in Future Retail has further strengthened its position in the online grocery segment, leveraging a vast network of stores for last-mile delivery.
Flipkart, an indigenous ecommerce giant, has also contributed significantly to the industry's growth. Its strategic diversification into fashion through Myntra and into digital payments via PhonePe has experienced substantial growth. Myntra has become a preferred destination for fashion enthusiasts, while PhonePe has played a pivotal role in the digital payments revolution.
The consumer-centric approach adopted by these platforms has been a driving force behind their growth. They have introduced innovative features like same-day delivery, hassle-free returns, and enhanced customer support, all contributing to improved customer satisfaction. Digital payments have played a vital role in simplifying transactions for customers. Flipkart's PhonePe and Amazon Pay have become significant players in the Indian digital payments space, fostering trust and convenience for online shoppers.
Right Policy Push
The government's initiatives, such as 'Make in India' and 'Digital India,' have both encouraged and regulated the industry, promoting fair competition and consumer protection, experts add.
In addition to the growth of industry leaders like Amazon India and Flipkart, various ecommerce verticals have thrived. The online grocery sector, led by BigBasket, Grofers, and Amazon Pantry, witnessed a surge in demand, driven by the convenience of doorstep grocery delivery, particularly during the pandemic.
Fashion and lifestyle ecommerce platforms like Ajio and Shein have gained prominence, leveraging data analytics and personalisation to cater to evolving consumer preferences.
Even local kirana stores have embraced digitalisation by collaborating with ecommerce giants, enabling them to participate in the ecommerce boom while retaining their local customer base.
The B2B ecommerce segment has also seen significant growth, with businesses increasingly relying on online platforms for sourcing raw materials, equipment, and other goods.
Now, turning to the upcoming festive season, it holds immense potential for further fuelling the growth of the Indian ecommerce sector. According to market research firm Redseer, online retailers in India are poised to witness a substantial uptick in festive season sales, potentially growing by up to 20 per cent, reaching a staggering Rs 90,000 crore. This anticipated surge in sales comes as consumer spending gradually returns to normalcy after several quarters of tepid growth in the ecommerce sector.
Boom Time Ahead
Better profit margins are expected during the festive season, driven by larger ticket sizes of purchases and increased advertising spending by brands. The report also highlights that prior to the Covid-19 pandemic, year-on-year growth rates of nominal private final consumption expenditure (PFCE) stood at around
8-9 per cent. However, external shocks like the Covid-19 pandemic and the Russia-Ukraine conflict led to significant market fluctuations, resulting in a slowdown in consumption due to tightening liquidity conditions in the last couple of quarters of FY23.
Nevertheless, the year-on-year growth for PFCE has rebounded to 9 per cent, and several stabilising factors are now coming into play. Interest rates have peaked, efforts are underway to resolve the Russia-Ukraine conflict, and Indian economic growth numbers are exhibiting strength, all of which are expected to provide meaningful tailwinds and support a relatively robust festive period this year.
The festive season's significance in India's ecommerce landscape cannot be overstated. This year marks the 10th year of festive season sales, coinciding with the Indian ecommerce market's tremendous growth, increasing nearly 20 times from a GMV of Rs 27,000 crore in 2014 to an expected level of approximately Rs 5,25,000 crore in 2023.
The number of annual transacting users has surged 15 times to reach 230 million this year, with a minimum of 140 million online shoppers expected to participate in the upcoming festive season.
Furthermore, the festive season is anticipated to witness a greater contribution from higher-margin categories such as beauty & personal care (BPC), home & general merchandise, and fashion. Premiumisation is expected to drive average selling prices (ASP) higher, and the rise in advertising and promotional revenues is likely to make this year's festive season highly efficient from a margin perspective.
Mrigank Gutgutia, Partner at Redseer Strategy Consultants, emphasised the diversification of categories, with several quarters experiencing enhanced GMV contributions beyond electronics. While electronics continue to be a significant offering during the festive period, a broader perspective reveals a clear trend of category diversification.
City-tier wise growth is also expected to be robust, with metros leading the way, achieving growth rates exceeding 10 per cent compared to approximately 8 per cent for other city tiers.
Moreover, the adoption of new-age technology solutions such as generative AI is expected to become more widespread during the sale period, enhancing and innovating consumer experiences and driving stronger growth momentum for the industry.
The Indian ecommerce sector's remarkable growth story, driven by industry leaders like Amazon India and Flipkart, reflects the evolving dynamics of consumer behaviour and preferences. The upcoming festive season holds the potential to further propel this growth, with significant contributions from higher-margin categories, the emergence of D2C brands, and the adoption of innovative technology solutions, making it a dynamic and evolving space to watch in the coming years.
