Trends to Simplify E-commerce Selling Part 2: Rise of Hinterland Cities in India
Blog: NASSCOM Official Blog
We all know that there is a huge diversity in India and one of the most important divisions is rural & urban, or cities & villages, or harbor and inland. The hinterland cities or remote parts of the country are less connected to the urban places of the country and have different definitions. More than 70% of India’s population which is almost 700 million people are living in more than 600,000 villages of India. The growth in this hinterland has always been hidden. But with the penetration of technology in these areas, things are changing today. These rural locations are slowly and steadily turning into urban, and the accessibility of inland to the coast has started to expose the potential that our hinterlands hold.
The hinterland or non-metropolitan cities in India are becoming a great factor for the growth of online retail, as per a new report by e-commerce focused SaaS platform Unicommerce. The e-commerce industry is having nearly two-thirds of their sales from Tier II and beyond cities, while the traditional metropolitan cities are only contributing 34% of the online sales.
This great impact clearly shows that the e-commerce industry has been successful in penetrating their market in the last half-decade. They are able to establish their niche especially in the Tier II and Tier III cities, and since the e-commerce industry is getting a huge demand then they are banking heavily on the growth of new consumers from these cities.
Hinterland demand for e-retail grows:
In 2018, the online customer from Tier-II cities and beyond were stood at around 50 million. By 2023, it has been expected to grow approximately 170 million. The share of unique customers from these hinterland cities would be 1.6 times of those in the Tier I cities. Some of the factors which are driving e-commerce growth in these cities are social commerce, vernacular language content, and improved last-mile delivery.
If we dig deeper, then we will found that fashion apparel is the most popular category in Tier III cities. It constitutes nearly half of the customer’s demand. When the e-commerce era begins, companies were only focused on the metropolitan cities, but now the trends are heavily changing. Although the metropolitan cities have seen a huge growth than the rest of India in terms of volume of orders, after the COVID-19 lockdown, things have reversed.
Delhi, NCR region, Maharashtra, and Karnataka, are combined responsible for 65% of e-commerce sales.
Trends in Post-COVID period:
The industries in e-commerce that are having huge demand are fashion & accessories, electronic items, especially smartphones, and the beauty & wellness industry. These industries were having huge growth in the pre-COVID period. After the COVID-19, the e-commerce industry not just recovered but in just June 2020, it witnessed an order-volume growth of nearly 17 percent. It clearly implies the significant thriving period for online shopping in India.
Also with COVID-19, the buying patterns and preferences also got changed. Currently, the customers are heavily buying in industries such as Health & Pharma, FMCG, and agriculture. These industries are observing an exponential growth, with a huge increase in first-time shoppers.
When e-commerce resumed its working after the lockdown, the return rate saw a dip of 10-30% on the basis of category. The reduced return rate can also be due to the new safety norms, customers are ordering those items which are mostly non-returnable. However, it would be worth noticing, if the trend of lower returns will continue for the long-term.
Dedicated Brand Websites are driving e-commerce:
As opposed to buying from a select e-commerce marketplace, customers now prefer to buy directly from the direct brands’ websites. Most of the companies are boosting their online capabilities and are opting for different strategies to drive more customers on their store.
Here are some of the other interesting stats of rising of hinterland cities in India:
1. Growing Demand:
- India is the fastest-growing E-commerce market and is expected to grow at approximately 1,200% by 2026.
- The Indian E-commerce market is expected to reach US$ 84 billion by 2021.
2. Attractive Opportunities:
- India’s start-up ecosystem is growing, which is well supported by favorable FDI policies.
- Government initiatives like Start-up India and Digital India, as well as rising internet penetration, is driven by market players like Reliance Jio
3. Policy Support:
- 100% FDI is allowed in B2B E-commerce
- 100% FDI under the automatic route is permitted in the marketplace model of E-commerce
4. Increasing Investments:
- E-commerce and consumer internet companies in India received more than the US $4.32 billion from private equity and venture capital players in 2019
With the launch of the 4G network and rising smartphone penetration, the e-commerce market of India is expected to grow to $US 200 billion by 2026 from $38.5 billion in 2017. Online retail sales in India are expected to grow 31% to touch US$ 32.70 billion in 2018, led by Flipkart, Amazon India and Paytm Mall.
The smartphone sales in India through e-commerce channels increasing by 8% every year to reach 152.5 million units in 2019, thereby making it the fastest among the top 20 smartphone markets in the world.
In this article, we have the major aspects of the hinterland cities in India and their role in e-commerce growth along with their stats. We, Ceymox will continue this series as two more parts of the Trends to Simplify E-commerce Selling are left. Stay tuned with our articles.