The ongoing pandemic hit the offline retail sector hard with plummeting business and revenues, which accelerated the shift to online with boundaries between online/offline are merging quicker than ever. The e-commerce industry in isolation continues to thrive against all odds and the new demand is coming from online shoppers on new commerce platforms, and geographies.
If you look at statistics from the previous decade, there has been almost five times more investment in Tier II and III cities as compared to metros and Tier I cities. As a result of this, there has been faster growth in terms of disposable income, internet access, and additional support infrastructure. Adding to the rapid development is also the fact that the impact of COVID-19 on retail activity has been less severe there. Owing to this and more, Tier II and Tier III cities are now geared to drive the new wave of growth for retail.
According to a report by Bain & Co., online shoppers in India are expected to hit about 300 million by 2025 and Redseer reported that there was an 85 percent rise in online shoppers in the year 2020 alone. The pandemic has managed to push people indoors and online, thus making offline and online retail all set to converge.
Over the next five years, 500 million first-time internet users are expected to come online via their mobile phones, a population often called the 'Next Half Billion', which is not going to be clustered in metros but fairly spread across Tier I, II and III thus driving the next phase of e-commerce demand growth.
Taking a look at upcoming trends in Indian retail, here’s why we surmise that a geography focus on Tier II onwards looms enthusiastically over the horizon:
Rise of New Channels
With the rise of WhatsApp-enabled social commerce, no-code platforms, live commerce, etc. it has become fairly simple for entrepreneurs to set up D2C channels in Tier II and III cities. Brands too are now increasing their efforts in ramping up their omnichannel strategies and shifting to consumer-centric business models as opposed to channels centric ones.
Merging of Offline and Online Boundaries
Another shift that is being witnessed is with D2C brands who started with an online presence only and are now looking to go off-line to reach the scale that is enjoyed by generally traditional off-line brands in Tier II and III cities. Similarly, traditional retail is now trying to shift to the online model, to become a part of new online growth and appeal to modern buyers, who value convenience along with choice on their mobiles. In fact, if you look at the FMCG sector, especially low order value clients, there will be a surge in the BOPIS ‘Buy Online Pickup In-Store’ model which is looking to become mainstream.
Modernisation of Supply Chain
Modern, tech-intensive supply chain solutions are now bringing to speed e-commerce parcels which have been a bottleneck for e-commerce groups. Assisting brands both online and offline these solutions are helping brands in making the right decisions concerning inventory placement and courier allocation etc.
Shift in User Mindset to ‘Safe Commerce’
Since the onset of the pandemic, consumers have started displaying a gradual shift towards a safety-conscious approach to convenience. In fact, studies have shown that Indian respondents are now willing to spend more money on convenience as a result of which brands too are adapting to the new normal and focusing on making customer experience consistent across channels.
The pandemic has changed our perception of normalcy, for example, the rise of remote work, has led to a significant chunk of the urban population, to move back to the home towns in Tier II and III cities, thus redirecting their demands as well. The retail sector has realised that it is quite impossible to maintain any sort of business efficiency, without the integration of inventory across online and off-line sales platforms.
As we look forward to stepping into a post-COVID-19 world, it isn’t too much to expect for the D2C models and omnichannel to gain mass popularity, focusing on Tier II and III Cities. With companies looking to invest in superior technology, that also offers customization of shopping experience and optimization of the supply chain, the Indian retail stands at a crossroads now, with a fundamental reimagining of business models and operating structures, led by technology.