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BW Businessworld

E-commerce: Counting The Clicks

Internet usage through smartphones and rising incomes is driving e-commerce growth in the hinterland

Photo Credit : Shutterstock

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The e-commerce industry has witnessed an unprecedented growth over the last five years. The growth was primarily driven by rapid technology adoption led by the increasing use of smartphones, resulting in an increased online consumer base.

E-commerce solves the big problem of access and availability for those in non-metros. Leading players in the market claim that nearly 50 per cent sales come from tier-2/3 towns. That’s why marketing strategies of e-commerce companies now revolve around reaching out to consumers in these cities. Nitin Kochhar, VP, Categories, ShopClues, says, “In most tier-2/3 cities where Internet penetration is not very high, people use mobile phones to shop, so it is obvious to have growth in e-commerce and m-commerce. That is why we plan strategies with certain flash sales for a large chunk of our customer base based in tier-2/3 cities.”

According to a recent survey conducted by EY, the greatest gap between consumption and supply-side penetration lie in smaller, new wave cities, and these differences highlight the opportunities for businesses to expand. Jayant Sood, Chief Customer Experience Officer, Snapdeal, says, “Over 70 per cent of order volumes on Snapdeal come from tier-2/3 cities. This indicates an evolution in consumer behaviour and expectations, leading to the growing adoption of e-commerce as a habit in these regions.”

The high potential tier-2/3 used-goods marketplaces are from Jaipur, Surat, Lucknow, Kochi, Aurangabad, Coimbatore, Thiruvanantapuram, Vadodara. Amarjit Singh Batra, CEO, OLX India, believes that, “The (Rs 780 bn) used-goods segment is driven by used mobiles, electronics, furniture, cars and two-wheelers and other household items.” The share of listings from tier-2/3 cities for many of these categories has increased from 35 per cent three years ago to almost 50 per cent today. Batra further adds. “While consumption patterns and popular categories are more or less similar for tier-2/3 and metro users, the growth of mobile as a category has been exceptional in these markets.”

Paucity of space and opportunities support the argument that there is a need to move beyond the metros for the next wave of growth. Gaurav Kushwaha, Founder & CEO, BlueStone.com, says, “While a large percentage of fine jewellery is driven by tier-1, we see a long tail of tier-2/3 cities slowly opening up, witnessing a steady increase in the number of average order value by almost 50 per cent. Hence, a strong potential to increase the trust in the brand in these markets.”

Other e-commerce players like Pepperfry also echo similar sentiments. Outside the top 8 metros, the online furniture portal, over the last two years, has seen 3X growth in the business. Mihir Kulkarni, Head, Brand & Retention Marketing at Pepperfry says, “Markets have experienced a high degree of digital adoption and an increase in the number of affluent households with strong purchasing power.”

It is not just gadgets and furniture that are gaining popularity in the second rung cities. Beauty products maker Biotique entered the e-commerce space in 2016 and has seen increased contribution to e-commerce from smaller cities. Vinita Jain, CMD, Biotique, says, “The consumers in such cities have the desire to upgrade their lifestyle and they have the purchasing power too. E-commerce as a platform empowers them to get access to these products.”

Kushwaha, who offers designs in over 20,000 pin codes in India, says, “Tier-1 cities, which were the early adopters to e-commerce, currently take the lion’s share (65 per cent) of our business. We believe that the table will turn over the next three years when tier-2/3 cities grow faster and command equal or larger market share for online fine jewellery sales.”

However, even as rising middle-class incomes, smartphone adoption and developing 3G/4G infrastructure is driving growth in the sector, some challenges with last-mile delivery remain. “Logistics is not world class in tier-3/4. We cover 29,000 pin codes, of which more than 40 are covered by third-party logistics, where we even deliver products on a bullock cart, such is the logistics innovation to service maximum customer base where many top players can’t even reach,” says Kochhar. Going by these testimonials, micro seems to be the new focus for e-commerce players now.


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Magazine 15 April 2017 internet smartphones shopclues