E-commerce value growth remains flat in Q4 2020 amid surge in small-town buyers, low-value goods

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Updated: Feb 10, 2021 2:01 PM

The growth in hinterland’s customer base focusing on affordable buying has also led to reduced average order size by 5 per cent during Q4 2020 from Q4 2019 for the e-commerce market led by Amazon, Flipkart, Snapdeal, and others.

ecommercePress Note 2 issued by DPIIT in December 2018 had noted that e-commerce marketplaces “will not mandate any seller to sell any product exclusively on its platform only.”

The growth in the value of goods sold via e-commerce channel in Q4 2020 has remained flat in comparison to the year-ago period amid the rise in value-conscious customers from Tier-II cities and beyond buying low-value or affordable goods. While the e-commerce volume grew 36 per cent in Q4 2020 vis-à-vis 26 per cent in Q4 2019, the value segment posted 30 per cent growth during Q4 of the last and preceding year as well. This disparity in the last two years “is a consequence of new consumers from Tier-II and Tier III+ cities and uptick in low value products and categories,” said a report by Unicommerce and Kearney on Wednesday. The growth in hinterland’s customer base focusing on affordable buying has also led to reduced average order size by 5 per cent during the quarter from Q4 2019.

“India’s e-commerce sector is seeing a paradigm shift with the growth of Tier-II and Tier-III cities and the emergence of new categories. Consumers are getting value-conscious, therefore companies will have to continue to invest more in creating products offering value for money to consumers. Companies will also have to diversify and expand into new categories,” Kapil Makhija, CEO, Unicommerce told Financial Express Online.

However, the growth in volume was triggered by the pandemic as consumer behaviour has been witnessing a gradual shift towards the online channel. The reluctance to shop offline in the initial phase of the pandemic had led to the growth in first-time digital buyers on e-commerce marketplaces such as Amazon, Flipkart, and others. The last quarter of a calendar year remains critical for offline and online sellers due to the festive and year-end seasons involving discount-led sales and campaigns.

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Importantly, during Q4 2020, Tier-II and III cities reported 46 per cent volume growth from 32 per cent during the year-ago period and 43 per cent value growth from 26 per cent during the same period last year, the report added. Tier-wise, the volume share of Tier-II cities grew from 12 per cent and 14 per cent in Q4 2018 and Q4 2019 respectively to 17 per cent in Q4 2020 while the share of Tier-III cities and beyond was up from 18 per cent during Q4 of 2018 and 2019 to 29 per cent in Q4 2020 eating into Tier-I cities’ share that contracted from 72 per cent in Q4 2018 to 68 per cent in Q4 2019 and 54 per cent in Q4 2020. Among top categories, FMCG & healthcare was the fastest growing category in Tier-I and metropolitan regions with over 150 per cent growth while fashion & accessories and electronics & home appliances categories showed maximum growth in Tier-III cities.

The direct-to-consumer strategy by brands to tap into consumers who are looking to buy goods directly from their makers also saw 94 per cent volume growth across almost all segments, according to the report. Importantly, “the number of clients investing in developing their own websites increased by 51 per cent YoY in Q3 and 66 per cent YoY in Q4 20.” Personal care, beauty & wellness brands have been the biggest gainers of the D2C trend. “The new-age digital-only D2C brands continue to drive the category growth with 142 per cent growth of brand website as compared 76 per cent growth on the marketplace,” the report added. “As the industry gains momentum, big brands will eventually venture into growing segments such as personal care and FMCG. As the online demand surge across India, companies will also start investing to develop hyperlocal capabilities to cater to consumers in Tier II and Tier III cities,” added Makhija.

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