How India Shops Online report. India to surpass the US as second largest online shopper base in 2 years

India with 180–190 million online shoppers in 2021 has the third-largest shopper base globally and is well poised to surpass the US as the second-largest in one to two years, according to “How India Shops Online 2022” report released by Bain & Company in association with Flipkart.

The report said that majority of future e-retail shoppers are already in the digital funnel, with only 40 per cent of the social-media user base shopping online in 2021. The pandemic has been a crucible moment for online retail in India, driving a 12-month acceleration in market penetration (~5 per cent in 2022) and a robust market growth of 25 per cent, which takes the market to $50 billion in 2022.

Over the next five years, the e-retail market is estimated to increase to $150–$170 billion, which will double the market penetration to 9 per cent–10 per cent. E-commerce is very small currently and while it is growing, there is opportunity for everyone to grow. 

“There are distinct micro-segments of online shoppers emerging across geographies, income segments and ages, which exhibit distinct shopping behaviour 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 GenZ age group (18 - 25 years of age) 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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Category mix of online purchases

In 2022, mobile phones, electronics, and appliances account for 45-50 per cent share of the e-retail market. Over the next five years, fashion, general merchandise, and grocery are expected to grow disproportionately and account for two-thirds of the e-retail market.

Fashion is considered a crucial category to onboard shoppers as more than 40 per cent of new shoppers bought fashion in their first online purchase. While fashion continues to be the gateway category and is expected to see an annual growth of 30-35 per cent, general merchandise and grocery is also expected to grow 35-40 per cent.

In 2021 alone, 40–50 million shoppers were added and in the next five years, the online shopper base is estimated to increase to 400–450 million. Most of these new shoppers (about 60 per cent) come from tier-3 or smaller cities. A new generation of digital natives—Gen Z—has started transacting online with 1 in 3 shoppers being from this cohort and will become a critical cohort in the future.

Alternative business models

Social-led commerce models are expected to grow approximately 50 per cent annually from 2021 to 2025 including social-network-led, reseller-led, and community buying models. The reseller model has facilitated wider e-retail reach and onboarded new shopper cohorts and is seeing 2-3 shoppers from tier 3/smaller cities, the fastest-growing shopper segment. It also presents as a platform to onboard new shoppers online, 40 per cent being first time e-retail shoppers. 

Video/live commerce also offers substantial potential, with more than 600 million users of short-form video platforms expected in India by 2025. It aims to manifest latent needs and recreate the offline shopping experience virtually.

Quick commerce has gained interest in India, with players having raised more than $3 billion in funding up to June 2022. However, long-term sustainability of these models is yet to be proven - players need to navigate challenges around scaling up sustainability, the report added.