The e-commerce trajectory in India has been evolving rapidly. Online retailing has dethroned a large chunk of in-store shopping. The pandemic was a challenging time for businesses everywhere, but those who were agile and able to adapt to the new normal thrived. This was especially true in the world of e-commerce, where companies had to reform incentives, divert resources towards technology, and incorporate innovative solutions. In the highly competitive market, brands that are building their opportunities and services are coming to the fore. With multiple factors at play, Tier 2 and 3 cities are now forging a rather large corner for themselves in the e-commerce market.
The shift in e-commerce sales is driven by various factors, such as increased Internet penetration, changing consumer behaviour, and the growth of local marketplaces. According to recent reports, the festive season of 2022 saw a surge in sales from Tier 2 and Tier 3 cities, with online retailers reporting impressive numbers. This trend is not just limited to the festive season, as e-commerce growth in these smaller cities has outpaced that of Tier 1 cities. It is now evident that the e-commerce industry in India goes beyond the urban population, and has made its way into the hearts of the hinterlands.
According to Flipkart, 60% of their consumers are from Tier 3 cities, and the company is undertaking campaigns to further target consumers from Tier 2 and Tier 3 cities.
Meesho's platform currently has approximately 8 lakh sellers, with 41% of them hailing from Tier-2 regions such as Hisar, Panipat, Tiruppur, etc. and 24% of the sellers being from Tier-4 regions.
According to the report by Unicommerce, in 2022, Tier 3 markets experienced an explosive growth rate of 64.7% in order volumes compared to the previous year, while Tier 2 markets also achieved an impressive 50.9% growth during the same period. Meanwhile, Tier 1 cities only saw a modest 10.3% increase in orders in 2022 compared to 2021. This highlights the remarkable potential for e-commerce growth in India's smaller cities and towns, which together accounted for nearly 63% of all orders placed by users.
What's remarkable is that Tier 2 and Tier 3 markets showed a faster growth pace compared to Tier 1 cities, indicating a shift in the country’s e-commerce demand. This trend is further fuelled by the rising adoption of omnichannel strategies among retail brands. 2022 witnessed a surge in the number of brands leveraging their offline stores to fulfil online orders, resulting in a staggering 55.6% increase in ship-from-store order volumes. This innovative approach to retailing is allowing existing brands to expand their reach and new brands to establish themselves in India's burgeoning e-commerce landscape.
There has been a remarkable growth in the number of Internet users in India. The introduction of digital payment options like UPI and the reduction of data prices have played a critical role in making e-commerce more accessible to consumers in rural areas. The increased availability of the Internet, and the rising number of smartphones, have created ample opportunities for smaller towns. The decline in data prices triggered by Reliance Jio and the success of the Digital India project has brought the convenience of e-commerce platforms to India’s hinterlands.
Moreover, social media marketing, content marketing, and influencer campaigns have definitively come into play. With more Indians across big and small towns using social media, brands can showcase their products to consumers directly. Brands are also collaborating with regional influencers to mark their presence, which contributes to a larger user base. The campaigns are also rolled out in regional languages.
Strengthening Logistics
Logistic centres have come a long way, reaching the ends and corners. Apart from existing third-party logistics services such as Delhivery, Xpressbees, ShadowFax, etc., companies are partnering with local delivery centres and national delivery players for effective regional reach. A strong groundwork based on a technology-led approach has had a direct impact on logistics, ensuring smoother and more timely deliveries. To enhance their operations, companies are investing in technologies such as demand forecasting, product recommendations, and predictive pin code identification to increase their capacity. Flipkart, for instance, has claimed to reduce its supply chain costs and generate profits from products with lower average selling prices. The company has achieved this by focusing on supply chain management, which has led to a reduction in shipping costs, making them cheaper than China. Companies are always looking to increase efficiency and decrease the cost of logistics. They are also leveraging the impact of personalization and constantly updating their app/website interface to show more personalised options to their customers. To strengthen their user base, companies are also adding vernacular languages to their websites.
People are now more comfortable with online shopping and are willing to trust e-commerce platforms to deliver products to their doorstep. This evolving consumer behaviour is another key factor driving the shift to smaller cities. The pandemic made online purchasing familiar to most consumers. Sellers are also more willing to sell their products online. To support small businesses in transitioning online, e-commerce unicorn Meesho introduced pioneering initiatives like Zero Commission, Zero Penalty, and 7-Day Payments. With the rise of local marketplaces, people living in smaller towns and cities have access to a wide range of products. This has created new opportunities for small businesses and entrepreneurs to reach out to a larger customer base. Doorstep deliveries, free returns, customization, and loyalty programs are among the many perks that have made consumers habituated to interacting with brands from the comfort of their homes.
E-commerce growth has also led to the empowerment of many women sellers in Tier 2 and Tier 3 cities who until then had limited avenues to scale. These women entrepreneurs can now access a larger market through e-commerce platforms, which has enabled them to expand their small businesses and contribute to economic growth. The scope of personalization makes e-commerce very attractive to consumers, and companies like Meesho, Flipkart, and Amazon are experimenting with new products and services to cater to the needs of consumers in these smaller cities.
With changing consumer behaviour, increased Internet penetration, digital habits, and robust regional logistic operations, Indian e-commerce players are in a great position, and their reach beyond metropolitan areas is telling. The sector's continued growth benefits small businesses regionally, along with making smaller towns and cities accessible to a wider range of products and services. While more investments in infrastructure are needed to make e-commerce platforms’ operations seamless, there is immense untapped potential in the country’s hinterlands when it comes to the sector.
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