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The Growth of E- Commerce Markets in India During COVID-19

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Pooja Paswan
January 25, 2020

“Ecommerce isn’t the cherry on the cake, it’s the new cake.”

~ Jean Paul Ago, CEO. L’Oreal

COVID-19 has caused an inflection in e-commerce penetration globally driven by consumers’ need for safety and convenience. Even in India, online commerce is gaining salience. India went into lockdown in March last year with only essential supplies being allowed delivery on priority in the initial phases, the e-commerce segment hit the pause button. With the gradual reopening of the markets, e-commerce in India is on the path of recovery.

Huge overnight changes to the shopping behaviors

From bulk-buying to online shopping, people are changing what they’re buying, when, and how. Electronics and appliances and health and pharma products saw the biggest jump after the lockdown. With work from home continuing, the demand for laptops, chargers and mobile appliances continued to be on the rise.

Since June 2020, India has also seen massive sales events from e-commerce companies – from Myntra’s End of Reason sale to Flipkart’s Independence Day sale and Amazon’s marquee event, Prime Day sales. That has also helped boost the order volumes. In fact, in its earnings report, Walmart has said that since the reopening of lockdown, GMV (Gross Merchandising Volume) at Flipkart has exceeded pre-COVID-19 levels. In July, Flipkart had said that it had surpassed 1.5 billion visits per month and reported 45% growth in monthly active customers and 30% growth in transactions per customer for FY20.

First-time shoppers emerge

One of the significant drivers of e-commerce is also the adoption of a digital first approach. E-commerce continues to be dominated by the top 5 cities of India, with Delhi, Maharashtra and Karnataka making up for over 65% of the consumer demand. However, there’s also a growing trend of shoppers from Tier II and III cities. The likes of Amazon and Flipkart too have been focussing on the ‘new consumers’ from smaller cities with initiatives like a vernacular language approach. This has been further boosted due to the pandemic. Tier III markets have seen a 53% year-on-year growth in e-commerce adoption, with fashion and apparel being the drivers of change in this region.

Panic Buying and Coronavirus 

As news of COVID-19 spread and as it was officially declared a pandemic by the World Health Organization, people responded by stocking up. They bought out medical supplies like hand sanitizer and masks and household essentials like toilet paper and bread. Soon, both brick-and-mortar and online stores were struggling to keep up with demand, and price gouging for supplies became rampant.

Humans respond to crises in different ways. When faced with an uncertain, risky situation over which we have no control, we tend to try whatever we can to feel like we have some control. 

COVID-19 Effect on Online Shopping Behavior

Paul Marsden, a consumer psychologist at the University of the Arts London was quoted by CNBC as saying: “Panic buying can be understood as playing to our three fundamental psychology needs.” These needs are autonomy (or the need to feel in control of your actions), relatedness (the need to feel that we are doing something to benefit our families), and competence (the need to feel like smart shoppers making the correct choice). These psychological factors are the same reasons “retail therapy” is a response to many different types of personal crises; however, during a pandemic there are added layers. 

One is that the global spread of COVID-19 has been accompanied by a lot of uncertainty and at times contradictory information. When people are hearing differing advice from multiple sources, they have a greater instinct to over-, rather than under-, prepare.

Secondly, there is the crowd mentality. Seeing other people buying up the shelves and then seeing a scarcity of necessary products validates the decision to stock up. No one wants to be left behind without any resources. 

Brands going direct to consumer

As the e-commerce ecosystem matures in India, there is an increasing trend of brands going directly to consumers to offer a great experience to its patrons. While the brands have created their own website, the brands continue to sell on the marketplace as it still drives the majority of the order volume. The number of consumers shopping directly from the brand’s website is increasing at much faster pace than marketplaces. Brand websites have witnessed 88% order volume growth as compared to 32% order volume growth on marketplaces. The top 3 segments that have seen an increasing penetration of D2C brands are Beauty & Wellness, Fashion & Accessories and FMCG & Agricultural sectors.

In the last one year, there has been a considerable growth of 65% for brands developing their own website, which has also led to an increase in self-shipped orders. The Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the United States to become the second largest E-commerce market in the world by 2034. Technology enabled innovations like digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements will likely support the growth in the sector. The growth in the E-commerce sector will also boost employment, increase revenues from export, increase tax collection by ex-chequers and provide better products and services to customers in the long-term.

Author: Pooja Paswan is currently enrolled at the John.F. Kennedy School of Government, Harvard University. She is an Assistant Professor in the Department of Political Science at Jamia Millia Islamia University, New Delhi, India. She has Ph. D in Public Administration and specializes in Public Policy. She was recipient of the ASPA 2019 Founders Fellow. She has worked extensively in the area of development administration and policy. She can be reached at https://jmi.academia.edu/PoojaPaswan and [email protected]. Twitter @poojapaswan

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