Small towns fuel growth of e-commerce in India

The e-commerce boom in India is at an interesting juncture with leading players giving stiff competition to each other. And one of the reasons why India has been able to reach the fifth position among the global retail destination is the growth in consumption for a wide variety of goods and

services driven by its 1.25 billion people living in Tier II, III towns. Foreign funding agencies are being lured to invest in the e-commerce market, fuelled small towns and villages. This despite the hurdles like: low broadband penetration to inadequate infrastructure of the country.

Non-metros riding the online wave

Consumers in small towns now exposed to social media and global brands with quick penetration of internet and smart phones have high aspirations and disposable income to experiment with the online medium. Foreign fashion brands, keen on exploring the lucrative Indian market, are queuing up to partner online shopping

platforms like Jabong and Myntra.

Jabong.com, the online marketplace for clothes, fashion and lifestyle accessories, is witnessing 65 percent of its sales coming from Tier II and III cities. Jabong sold goods with a gross merchandise value of 35 million dollars (over Rs 212 crores) in July and sales have been growing 10-12 percent month-on-month over the last six months.

While many of the Indian brands that Jabong sells will be available to Indian customers in smaller cities through physical stores, it is the introduction of international fashion brands like River Island and Selfridges, exclusively on its platform, that are likely to attract customers in those regions that don’t have access to such high street fashion. Even leading fashion etailer Myntra, witnesses 45 percent of its revenues coming from smaller cities, and now expects the contribution of these regions to its topline. Etailers have also wronged the notion that consumers from small town only purchase value for money products. In fact they are willing to shell out more to grab a product of their choice.

Aspirational small towns boost growth

A study by KPMG study states that the share of online buying from Tier II, III cities and rural areas stood at 50 percent of overall transactions. Experts expect it to further rise to over 60-70 percent. Flipkart’s product categories like books and mobile phones, for example, witness a huge response from smaller cities. Since 2012, Google has been organising the Great Online Shopping Festival (GOSF) in India through which it brings leading e-commerce players on a common platform to provide customers the best deals available online. During GOSF 2012, around 70 percent of the online traffic came from the Tier I cities and in 2013, the share of traffic from Tier II and III cities increased over 50 percent, which now stands over 60 percent of the online traffic. By December, Google expects this number to grow further when it launches GOSF 2014.

Now to reach out to a wider audience base, e-tailers like Jabong have started partnering with India Post, coffee shops, and petrol pump outlets. Meanwhile Amazon is all set to launch drone delivery services in India. A paper by Assocham says that regular trade (when people buy goods from shops) increased by 65 percent in 2013 but online trade registered an impressive growth of 85 percent, a good 20 percent more.