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E-retail in India is expected to scale beyond $160 billion in value by 2028. The market has experienced strong growth post-pandemic, with an estimated value of $57–$60 billion in 2023, according to the findings from the fourth (2023) edition of ‘How India Shops Online’, a report released by Bain & Company in collaboration with Flipkart.
This represents an annual addition of $8–$12 billion since 2020. The e-retail market is poised to grow in the coming years, with online spending currently only 5–6 per cent of total retail spending in India vs 23–24 per cent in the US and over 35 per cent in China, indicating massive headroom for growth.
“Long-term fundamentals of India’s e-retail industry, including affordable data, improved logistics and fintech infrastructure, and strong digital consumer ecosystems remain intact, and the market is expected to rebound to 23–25 per cent growth levels, surging beyond $160 billion by 2028,” said Arpan Sheth, Partner and Global Leader of Bain’s Innovation & Design Capability Area.
Even as the online channel grows, the offline channel will continue to be crucial. Majority of India’s retail spend (94–95 per cent) continues to be offline, with General Trade accounting for 87 per cent of the overall retail spend. On one side, scale retailers are growing offline presence; on the other, online-first insurgents are adopting omnichannel strategies to grow scale.
The report underscores three key drivers of e-retail growth that have played out in India. These include improved physical and digital access, enhanced affordability and convenience, and the emergence of digital ecosystems. All of this paves the way for a dynamic and expansive future in India's e-retail landscape. The fourth key driver, affluence among consumers, is yet to play out. As GDP per capita continues to increase, especially beyond $4,000, it is expected to drive a sharp rise in online spending, as spend per shopper on discretionary products increases.
In India, around 240 million shoppers are expected to participate in e-retail in 2023, with significant headroom to grow given more than 60 per cent of internet users are not shopping online vs. only around 20 per cent in the US and China.
An evolving consumer landscape highlights the importance of catering to diverse microsegments. Currently, 7 out of 10 online shoppers reside in Tier 2+ cities, and a third of online shoppers are a part of Gen Z. Furthermore, about a third of online shoppers come from low-income or low-middle-income cohorts. Multiple models are being developed to effectively build, scale, and serve this diverse shopper base. For example, voice and vernacular offerings are popular among new shoppers from smaller cities—about 25–30 per cent of first-time shoppers used these offerings at least once in 2022. And 60–70 per cent of voice and vernacular shoppers hailed from Tier 3+ cities in 2022.
The seller ecosystem in India is also expanding rapidly, with twice as many sellers added in 2022 compared to the previous year. Around two-thirds of these new sellers came from Tier 2+ cities and around three-fourths operate in lifestyle, home, and electronics categories. More than half of the total seller base hails from 7 cities, namely Delhi NCR, Surat, Jaipur, Mumbai, Bengaluru, Hyderabad, and Kolkata. Insurgent online-first brands have emerged as a fast-growing seller cohort, particularly resonating with Gen Z consumers.
The e-retail industry in India is witnessing the emergence of new business models to cater to consumer needs. These include quick-commerce (Q-commerce) platforms, hyper-value commerce, inspiration-led commerce (live commerce), and fast fashion. While some of these models have achieved significant growth and success, others are still in the nascent stages.
"Q-commerce platforms are revolutionizing the way consumers shop for their everyday needs, providing unparalleled hyper-convenience and lightning-fast delivery,” said Shyam Unnikrishnan, partner and leading member of the consumer products and retail practice, Bain & Company. “Indian players have exhibited promising results in this space. Over the past year, Q-commerce orders have doubled, accounting for 40–50 per cent of India's e-grocery spend.”
This is currently concentrated in metro and tier 1 cities, with the top 10 cities contributing to approximately 80 per cent of the total orders.
Shyam said that hyper-value platforms have gained attention by providing unbranded assortment at incredibly low prices. In India, he said that the hyper-value sector's share of overall e-retail grew fivefold between 2020 and 2022, making it particularly popular among shoppers from Tier 2+ cities (which account for 70–80 per cent of shoppers) and low- or low-middle-income households.
Inspiration-led commerce, also known as live commerce, has seen rapid growth in Southeast Asian markets, accounting for about 15 per cent of gross merchandise value (GMV) in 2022. However, the live commerce model is still in its early stages in India. Fast fashion, a global phenomenon capturing a significant portion of women's apparel spending, is also making waves. India’s fast fashion market is nascent but expected to grow at 30–35 per cent per annum between 2022 and 2027.
The e-retail industry has seen a growing emphasis on profitability in recent years. Beyond continued improvement in business economics, e-retailers have amped up their focus on five key monetization levers: advertising, seller services, fintech, externalisation of services, and subscription-based loyalty programs. Advertising-led monetization is growing disproportionately in India.
"Retail media is the third big wave in digital after search and social across geographies,” said Sankalp Mehrotra, Vice President of Monetization, Flipkart. “Both incumbent and insurgent brands and sellers use retail media to kickstart their growth flywheels.”
Generative AI (Gen-AI) is also set to transform the e-retail experience, with applications in areas such as discovery, seller enablement, targeted marketing, customer support, and business efficiency.
94–95%: Majority of India’s retail spend continues to be offline
