Tier-2 & 3 regions are goldmines for e-commerce firms: Amazon India V-P

Amazon India has witnessed a significant demand for services from Tier-1 and Tier-2 regions for its flagship sale event

American e-commerce giant Amazon is scaling up its efforts to expand in India's Tier-2, -3 towns and hinterlands. It has witnessed a significant demand for services from these regions for its flagship sale event, 'The Great Indian Festival' (GIF).

Amazon India registered a record 36 hours of shopping for its Prime Early Access sale and on the first day of the GIF, despite competition from offline stores. The Early Access event started started on September 22 for its Prime members. Prime sign-ups, Amazon claims, were 1.9x higher than last year. While a large proportion of Prime members are from Tier I cities, GIF upended the trend.

"On September 22, we had the maximum number of sign-ups in our history, with 68 per cent of sign-ups from Tier-2 and -3 cities," said Noor Patel, vice president, Amazon India, in an interview with Business Standard. "The data is quite the opposite to the common perception. Prime is now far deeper and widespread, which shows that the need for it is universal."

Prime subscription offers customers free and fast delivery on eligible items, video streaming, music, free in-game content and exclusive access to deals.

Amazon is competing with players such as Walmart-owned Flipkart, Reliance's JioMart, Tata Group and SoftBank-funded Meesho for a share of the $45-50 billion e-commerce market, which is expected to grow to $350 billion by 2030. 

"Tier-2 and -3 (region) are a goldmine," said Patel, adding that it is a market where the long-term and short- and medium-term growth lies. "We believe if you have to win in India, you need to be relevant across over 19,000 pin codes," he said.

Amazon India has been investing in scaling up infrastructure to enable sellers to serve customers all over the country. It has over 60 fulfilment and sortation centres across 19 states, over 1,850 Amazon-owned partner stations, 28,000 'I Have Space' partners and thousands of Amazon Flex delivery partners.

Sellers on Amazon India can leverage fulfilment programmes from Amazon, like Easy Ship and Seller Flex, to expand beyond their home base. These programmes help sellers with possible cost-effective storage and logistics solutions for entrepreneurs and small and medium businesses.

"Our investment in fulfilment centres is growing," said Patel. "We have invented things in India that we have never done in any other part of the world. For instance, Seller Flex is like Amazon technology operating from a very small seller location. What we have built, actually, has far greater relevance for smaller towns."

Amazon India is also expanding its same-day delivery--within 4 hours-- to more than 50 major cities and towns in India for Prime members. These include Surat, Mysuru, Mangalore, Bhopal, Nashik, Nellore, Anantapur, Warangal, Ghaziabad, Faridabad and Patna. Last year, same-day delivery was available in 14 cities.

"Our systems are robust enough to manage the surplus because you could end up in a situation where you start delivering late," said Patel. "We are very paranoid about our delivery, accuracy and promises."

The fashion category is driving the festival sale growth. Metro cities contributed 36 per cent of the sales for Amazon Fashion, whereas more than 60 per cent of sales came from Tier-2 and -3 cities.

India's e-commerce spending is expected to grow to $130 billion-plus in gross merchandise value (GMV) by 2025, with online shoppers projected to increase to 300 million, according to US-based research group Bernstein.

But the road may not be easy for Amazon. Bernstein points that the e-commerce major is falling behind its rival Flipkart in India as it faces an unfavourable regulatory environment. In April, the investigative arm of the Competition Commission of India raided the Flipkart and Amazon seller offices. When asked how Amazon views the overall regulatory and policy environment for businesses, including e-commerce firms in India, Patel said that the company is obsessed with following the law of the land, "both in letter and spirit".

"We are open to any investigation and perhaps, in some cases, clarify misconceptions," said Patel. "All regulators are doing their job, and it is our job to work closely with them and present a truthful picture."

The other issue is the price of growth. Amazon's growth has come at a high cost, pointed Bernstein. Over $6.5 billion-plus has been invested to date, but profitability remains elusive. The research group states that Flipkart led the Indian e-commerce market with $23 billion of sales in 2021. Amazon was the second-biggest player, with $18-20 billion of GMV last year. Reliance came in next with e-commerce sales of around $4.6 billion.

There is a long road to success. India is one of few large and underpenetrated e-commerce markets, with retail penetration of only 5 per cent, compared with the global average of 14 per cent.