The $810 billion Indian retail market is the fourth-largest in the world and is rapidly evolving to include a sizable e-retail component. The pandemic has accelerated this transition. In FY21, while the overall retail market shrunk by 5%—along with a 7.3% contraction in the GDP—the e-retail market surged by 25% to reach $38 billion despite the lockdown extending several months, a new report titled ‘How India Shops Online 2021’ by Bain and Company said.

This growth, the report said, was driven by Covid-19, which caused increased adoption of online channels. "Covid-19 provided a massive stimulus to India’s e-retail penetration, accelerating it by 12 months to reach approximately 4.6% in FY21. This increase was even greater in metro cities, as one in three people shopped online at least once across the top eight metro cities last year," the report said.

"E-retail is about 4.6% of the $810 billion retail market and is estimated to be approximately $38 billion in FY21. The pandemic has been a watershed moment for Indian e-retail, enabling a 12-month acceleration in penetration. Covid-19 induced inflection in e-retail is a global phenomenon driven by an enhanced consumer need for safety and convenience. Over the next five years, we expect the India e-retail market to grow to $120-$140 billion by FY26," said Shyam Unnikrishnan, partner, Bain and Company.

India has the third-largest online shopper base globally, with 140 million e-retail shoppers in 2020, only behind China and the U.S. However, the market is still massively untapped and there is immediate potential to reach India’s large Internet user base of approximately 625–675 million people. Global e-retail markets indicate that increases should remain, sustaining at levels higher than before the Covid-19 pandemic, albeit lower than peak levels, the report read.

Manan Bhasin, associate partner, Bain and Company said, "India’s e-retail market is relatively nascent, compared to more mature markets such as US and China. The Indian market is unique in some aspects—for instance, cash on delivery is still commonplace (accounting for 45-50% of e-retail GMV) even though digital payments have risen substantially; multi-lingual vernacular platform interfaces are critical to onboard the next wave of online shoppers."

The mobiles and electronics categories witnessed a one-time growth spurt while frequent-use categories—such as grocery, household, and personal care—saw continued acceleration; discretionary categories, such as fashion and travel products, on the other hand, saw relatively slower growth. However, the discretionary category’s growth has started rebounding in 2021, according to the report.

Bain and Company analysts also said that the India e-retail market is expected to grow at 25%–30% annually over the next five years to reach $120–$140 billion by FY26, which is higher than Modern Trade. Small-town India will fuel this growth, accounting for four of every five new shoppers. During the pandemic, reverse migration from metro cities further accelerated growth in smaller towns.

"In addition to small towns, women and older shoppers continue to increase the e-retail base. E-Retailers played a mission-critical role in maintaining essential food and hygiene products for millions of Indian households during the lockdowns," it said.

The report also revealed some interesting consumer insights. "An e-retail visitor spends fewer than 10 minutes per visit on a platform. Shoppers browse 10 product pages, on average, in electronics, and more than 15 in mobiles before adding any to their cart. Brands and sellers have limited time to tell their story and make an impression in the minds of the consumers," it said.

Nearly half of the visitors browse image galleries, whereas only one in 22 read product descriptions. The report also mentions that voice and vernacular are no longer niche. "One in 10 platform users adopt voice search, and one in three new e-retail users visit through a vernacular platform interface. Voice and vernacular searches will increasingly become mainstream," it said.

The report also suggested that content creators and influencers will play an increasingly critical role in the future of commerce. "Approximately 40% of online shoppers made at least one purchase through social media channels (e.g., Facebook, Instagram, WhatsApp) in 2020," it said.

When it comes to digital payments, they are gaining fast, but cash remains key. "Use of digital payments and credit has accelerated significantly, although cash purchases continue to account for approximately 45% to 50% of the e-retail gross merchandise value (GMV), even during the pandemic," it said.

Growth in the industry is broad-based—e-retail continues to benefit millions of shoppers across India and has democratised shopping by providing access to more than 95% of India’s pin codes. "It has empowered and provided significant business avenues to Bharat’s small sellers and micro-entrepreneurs who have benefitted from the growth through large e-retail platforms as well as D2C channels. We expect a few mega trends that will shape the future of online shopping in India—emergence of digital ecosystems; explosion of voice, vernacular; video-led commerce; social commerce; direct-to-consumer (D2C) and omni-channel commerce," said Abhishek Raj, senior manager, Bain and Company.

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