Cheap data and demonetisation have created an online shopping boom in India

Empty stores?
Empty stores?
Image: Reuters/Adnan Abidi
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India’s e-commerce websites are getting crowded, and the biggest chunk of new shoppers are coming from the country’s smaller cities.

In 2017,  the number of monthly active shoppers on Indian e-commerce portals rose 33% year-on-year to 20 million, advisory firm RedSeer Management Consulting said.

This was mainly because of the increase in internet usage in India’s smaller urban centres after the launch of Mukesh Ambani’s Reliance Jio, and the demonetisation of two high-value notes in November 2016, Vaibhav Arora, associate general manager, RedSeer, told Quartz.

Since its launch in 2016, Reliance Jio has been offering data at extremely low prices, pushing other players such as Bharti Airtel and Vodafone to reduce their rates as well. On the other hand, demonetisation nudged several Indians to shop online and transact digitally given a shortage of currency supply.

Tier-II towns were the primary contributors to the growth of users in 2017, accounting for 41% of the total shoppers. This trend is likely to continue and tier-II cities alone will make up for nearly half the gross merchandising value (GMV, or the total value of goods sold through a marketplace) of online retailing in India by 2020, according to RedSeer. Currently, tier-II towns make for 35% of India’s total e-commerce GMV.

Margin management

With the number of shoppers from non-metro cities increasing, e-commerce companies have been preparing themselves for these new markets.

For one, they are investing heavily in logistics and their supply chains. With online discounting nearly going away, customers are now picking their trusted shopping portals based on delivery and post-delivery services such as return pickups, according to RedSeer.

So, rather than depending on third-party players for the last-mile delivery of products, e-commerce players are taking control of their delivery processes.

“Both Flipkart and Amazon get nearly 70% to 80% of their deliveries done through captive arms, ekart and ATS (Amazon Transportation Services). And now with Alibaba putting in money on Xpressbees, it has become kind of a captive arm for Paytm,” Arora pointed out. Last month, Alibaba invested $35 million (Rs224 crore) in Pune-based logistics company XpressBees.

However, to milk more revenue from tier-II cities, e-commerce players will have to start building trust in the minds of these new consumers and ensure that they shop for a wider range of products.

Currently, a majority of purchases from smaller towns are limited to branded low-margin products like mobile phones and other electronic items. It will be essential for e-commerce companies, which are struggling to become profitable, to get these shoppers to buy high-margin items like apparel or home decor.

“The e-tailers are facing challenges to scale-up the fashion category as consumers in tier-II cities have low trust in the fashion category of the e-commerce industry,” Arora said.