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India’s online commerce market is expected to grow 25-30% annually over the next five years to reach $120 billion-$140 billion by FY26, outstripping the size of modern trade in India, Bain & Company, Inc. said in a report. And small-town India will fuel this growth, accounting for four of every five new shoppers, it said.

So far, India’s retail market has rested largely with more unorganized smaller players, followed by large format chains and only then e-commerce. Online sales have had a smaller share of retail market as consumers are just warming to buying goods online.

However, the pandemic has shifted the market and consumer behaviour to favour online sales. By FY26, modern trade sales are expected to touch $105 billion–$115 billion. In the same period, e-retail market is expected to grow at 25–30% annually to reach $120 billion–$140 billion.

The How India Shops Online 2021 report noted that the pandemic helped create a significant uptick in several categories online as consumers avoided stepping into stores. Electronics, fashion and general merchandise are aiding the entry of new shoppers into online shopping. This helped the e-retail market to grow 25% and reach $38 billion in the fiscal year ended March 2021. Meanwhile, the overall retail market shrank 5%.

“As e-retail accessibility continues to expand, a new wave of shoppers will come online. The majority of these future online shoppers are likely already in the digital funnel—watching videos and using chat and social media apps. E-retailers are increasingly tapping into these top-of-the-funnel offerings to build holistic ecosystems and accelerate transition to commerce," said Arpan Sheth, partner, Bain & Company.

Electronics, driven by mobile phones, laptops and desktops, continue to be a growth driver for online shopping. In fact, one in two smartphones are now sold online in India. Meanwhile, fashion, electronics, general merchandise, and mobiles continue to be key gateway categories for new online shoppers. Fashion continued to be a first purchase category. In 2020, 35–40% of new shoppers bought fashion in their first transaction, followed by general merchandise. In 2020, 80% of new customer growth for e-commerce companies came from tier-II and smaller towns.

 

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