E-Commerce in India – Accelerating Growth in Tier II & III Cities

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Latest figures released by Google shows India’s growing inclination towards e-commerce and online purchases which witnessed an  unprecedented surge in 2015. Piyush Gupta writes on what awaits the sector in 2016.Courtesy: ezeelive.com

Google released a list of what India searched for most during 2015. The list is dominated by e-commerce giants with Flipkart, Amazon and Snapdeal figuring in the top five. Paytm, another e-commerce shopping website which entered India last year, also made it to the list, at number 10.

This exhibits India’s growing inclination towards e-commerce and online purchases which witnessed an  unprecedented surge in 2015. Considerable improvements in the ecommerce ecosystem and online payment structures have gotten both sellers and buyers over their fears of online business risks.

Consequently, 2015 saw incumbent players such as Flipkart and Amazon making successful attempts in getting hundreds of sellers online, and traditional offline retailers such as Reliance and Birla Group making their debut in the e-commerce space with the launch of their own online portals. Further, interesting mobile lead transformations last year included Myntra going app-only and ‘Big Billion Day‘, an annual extravagna of offers and deals hosted by Flipkart, being made exclusive to Flipkart app. Rapid technology adoption led by  increasing use of devices such as smartphones and tablets, access to high speed mobile internet, favored demographics and a digitized user base have helped aiding growth of this niche sector.

Until recently it was thought that the online retail business wouldn’t have much support outside Tier-I cities. Although it is true that the online retail business have a huge market in Tier-I cities , against the 10 metro cities where e-commerce has seen traction, there are as many as 3,133 Tier-II and III cities, and 1,233 rural hubs that are getting onto the online retail bandwagon.

While one third of India’s 1.2 billion population lives in Tier-I cities through 4 cities, statistically only 8% of these reside in Tier-I cities. This means that, an online seller cannot ignore the combined volume of the more than 4,500 cities and hubs that make up the rest of India.

Take for instance these facts shared by Amazon in their sales report. In 2015, almost 55% sales for Amazon Fashion came from Tier-II cities as compared to 45% in 2014. Jaipur and Nagpur topped the list in terms of sales, followed by Surat. Overall growth of Tier-II markets have been about 600%. Also, use of mobile phone has seen over 900% growth and the numbers are similar in comparison to Tier-I cities with 950% growth in mobile usage.

There has also been a strong adoption for Reward and Loyalty programs among consumers in the recent years. Exciting discounts from these programs always excite customers in the Tier-II and Tier-III cities – expanding the channel network and reaching cities like Ernakulum, Raipur and Kakinada.

Mobile technology is also revolutionizing the Tier-II and Tier-III markets. Half the shoppers in Tier-III cities are already on mobile, as compared to the one third from Tier-I cities, according to the Forrester’s report. Cheaper smartphone technology and the growing range of connectivity in Indian towns seem to be the root cause of these figures, and an online retailer must not ignore them. In fact, the m-commerce (mobile commerce) market in India is slated to reach $19 billion by 2019 according to some estimates.

Shipping and delivery in Tier-II and Tier-III towns can be problematic due to the lack of development in rural areas and the traffic clogged city routes. Many online marketplaces have devised solutions to address their last mile delivery challenges. Amazon, for instance, is using the network of traditional Kirana stores, at least 12 million of them, to test out its shipment pickup strategy. State owned India Post has 154,882 post offices (as of 2014 only) and a vast majority of them are found in the villages. Online marketplaces such as ShopClues and Snapdeal are working with India Post to reach their shoppers in the remote corners of India.

Catering to the demand in small towns, Snapdeal further acquired a stake in Delhi based logistics and delivery services venture GoJavas in 2015. More and more e-commerce big players will be following the suit as these Tier-II & Tier-III towns are turning out to be the force behind the growth of online retail in India.

With these developments, better fulfillment capabilities, expanded reach and control over the shipment delivery time by e-commerce companies, sellers must not get surprised if they start getting major chunk of orders from rural India. So, if you are an online seller, 2016 is the year for you to get on to the e-commerce ladder.

Piyush Gupta is the President of Kestone

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