Covid-19 has caused inflexion points in global e-commerce. A large number of consumers looking for safety and convenience have moved to e-commerce platforms. India is one of the largest retail markets in the world at approximately $850 billion and is projected to surpass $1.7 billion by 2025. It is expected the e-tail market to lead the shift to organized retail in the next five years.
Let us take a look at the factors fueling the growth of Indian e-commerce:
A Steady Rise in the Per Capita Income
India's per capita income has surpassed $2K leading to a higher disposable income. According to industry experts, $2,000 per capita income is traditionally considered an inflection point for any economy (Eg: China, displaying exponential growth since 2006).
E-commerce deliveries now cover approximately 99 percent of all pin-codes. According to a recent Bain Report on India eCommerce landscape, 97 percent of postal codes in India ordered at least 1 item online in the last year.
Steep Fall in the Internet Prices
India has one of the cheapest internet data packages globally, which leads to more eyeballs, more browsing hours, and new customers.
COVID as a Catalyst
COVID has brought in a new segment of customers who have started shopping online. In the US and the UK, similar trends are visible.
In the UK, the growth of e-commerce penetration from 10 percent to 20 percent took almost six years, while a similar growth from 20 percent to 30 percent was achieved only in 12 months. E-commerce sales grew by 40 percent in the US, while retail sales could only catch up by 13 percent growth in the past year.
What is D2C?
The evolving e-commerce ecosystem and consumer needs have given rise to D2C (Direct to Consumer) brands. D2C Brands usually start with niche consumers as their target market, primarily using online ecosystems to enhance reach while fostering an emotional connection with their customers.
Most successful D2C brands have been built by scaling one niche consumer insight/ product via digital ads and influencer marketing.
While this is still somewhat an evolving model and most companies are still figuring our sustainability and margins, some notable D2C companies such as Warby Parker, Allbirds, Casper, Boat, Country delight, Licious, etc., have achieved success on a larger scale.
India is expected to have a $100 billion market for D2C companies by 2025.
Why is there a growth in D2C brands?
We will see a more significant CAGR in D2C brands vs. e-commerce post COVID. Here are the reasons:
Trust: With an increase in the E-tail, customers are looking for trust before making a buying decision. Brands with better emotional connection and an impressive brand story will create a better reputation with their customers and will see a better lifetime value. Sophisticated branding and storytelling from D2C brands will help in gaining customer trust.
Long Tail Products: To stand against the competition distinctly, businesses are looking into unexplored product categories and product innovations. Homegrown brands have not only disrupted the existing product categories but have introduced new categories. For instance, we, at Skin Elements, identified a gap in Men's Intimate Hygiene, Chafing and successfully launched products in the past, which are leading the market. Increased focus on product innovation and customer insights has undoubtedly led to greater ROIs for D2C brands.
Investments and Financing: Highly successful exits in the past have led to more investments in the D2C sector from the VCs. For e.g. Casper has been valued at approximately half a billion on NYSE after listing. In India, even homegrown brands have reached sales of Rs 100 crore in less than three years with VC funding. Multiple financing models such as Thrasio and Revenue Based Financing (RBFs) have emerged to fuel the upcoming businesses.
Therefore, with no capital constraints and significant demand, the D2C sector is looking at hyper-growth in the next five years and that too at an inflection point during COVID. D2C brand owners are in for big business.