Business News

Indian shoppers to spend $140-160 billion online by 2025: report

Online consumption categories such as fashion and apparel, food and FMCG, and beauty and personal care are expected to have a higher share in India’s online retail pie by 2025, a report by Boston Consulting Group and Matrix Partners India said.

The pandemic accelerated digital penetration by 12–24 months across different sectors, which will boost the adoption of e-commerce in reaching a total of 350 to 400 million online shoppers spending $150 billion by 2025.

At 25%, the fashion and apparel category is expected to have the highest share of online retail spending in estimated overall online retail spends of $140 billion to $160 billion by 2025. In 2021, the category stood at 20% of $50 billion to $55 billion.The category is also replacing the mobile devices category, which is expected to fall to 23% in 2025 from 32% in 2021.“While mobiles used to be a very large portion of ecommerce marketplaces, the absolute number is not coming down. The actual number is growing. The base is growing, but the penetration is already high,” Siddharth Agarwal, principal, Matrix Partners India, told ET in an interaction.

Agarwal pointed out that different categories got online penetration at different points in time, saying that mobiles had reached a decent penetration earlier, while other categories are getting discovered now.

“Mobile was a high ticket and size high average order values category, and as the logistics and needed infrastructures were developing it was logical and efficient to sell that. Now as more categories unlock as the payments infrastructure, the logistics infrastructure matures, you will see the cost to serve the consumers is coming down. Hence more categories, which are more frequent, are coming in,” Agarwal added.

Other categories that the report mentioned were beauty and personal care, food and FMCG, fashion and apparel, furniture and decor, electronics and appliances, prescription medicines, recreational items such as toys, books, stationery, movie and tickets and automotive and maintenance.

The report also mentioned how increasing affluence in the country over the next few years – measured by increasing number households having annual income of more than Rs 5 lakh – is likely to drive discretionary spending and spur growth in categories beyond food and clothing.

“High affluent households spend a lower percentage of their spend on food and clothing, because they start spending on other discretionary purchases such as transportation, communication, leisure, education, and so on. For example, someone who is a struggler or part of the next billion almost spends about 45% of their household spend on food but the elite will spend 14-15% of their household spend on food,” Parul Bajaj, managing director and partner, Boston Consulting Group, said.

The report added that the Indian consumer technology space has seen large value creation with over $250 billion in valuation and over 40 unicorns as of December 2022.

BCG and Matrix Partners India conducted a proprietary consumer research, along with discussions with about 25 startup founders and chief executives (CXO) to understand other trends such as the large proportion of new shoppers in online commerce being over 35 years old, women and from tier 2+ cities.

The report suggested, driving sustainable growth at consumer technology companies from 10 to 100 phase would require maximising customer lifetime value by expanding offerings, driving loyalty through customer retention, and focusing on cross-selling and up-selling.

Other suggestions included expanding distribution across channels and geographies to target new customer archetypes, evaluating international markets for entry, driving path to profitability, unlocking founder bandwidth to focus on strategic goals via organisational build-up and harnessing the power of artificial intelligence and analytics across the value chain.



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