For online retailers, the millions of Indians living in small towns are a potential goldmine

So many still offline.
So many still offline.
Image: Reuters/Rupak De Chowdhuri
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Small-town India has a lot to offer India’s online-retail players.

By 2020, consumers from the country’s tier-II cities and beyond will comprise 55% of monthly online shoppers, up from 42% in 2016, Bengaluru-based research and consulting firm RedSeer noted in a press conference last week. Over 3,133 Indian cities, including Patna and Coimbatore, come under the tier-II and tier-III city categories, which have populations of under a million and under 50,000 respectively. From the 53 cities with more than a million residents in India, ten metropolitan cities, including the likes of Mumbai and New Delhi, account for a meager 10% of the total 1.3 billion-strong population.

In the next three years, RedSeer says, half of the gross merchandise value (GMV) share of e-tailing will be generated in small-town India, too. GMV, which is calculated by multiplying the sale price charged per item by the number of items sold, is often considered a window-dressing metric that exaggerates success, but a big increase is still notable.

As a result, companies have begun adding products and brands that are in demand in smaller cities, RedSeer added. Last month, India’s biggest domestic e-commerce player, Flipkart, launched the budget “made-for-India” private label Billion. And Chinese phonemakers have been splurging on marketing campaigns to paint themselves as high-quality but affordable. Some, like Guangdong-based Oppo, have been setting up physical stores to reach smaller cities with limited or no internet access. Others, like Xiaomi, are localizing by supporting myriad Indian languages.

Moreover, “delivery speeds and delivery reach have improved in Tier-II+ cities in the past 1-2 years due (to the) addition of more and more fulfilment centres/warehouses,” according to RedSeer.

And with incomes and internet penetration set to rise, there’s a lot of room to grow in small-town India. Currently, this segment only accounts for 35% of the $15 billion e-tailing market, despite constituting 65% of the country’s $700 billion overall retail market.