Transforming MSMEs through E-commerce

 

Festive Ecommerce Trends | January 2024

 

 

The festive season stretching from Navratri to Diwali & Bhai Dhooj, during the months of September to November, represents the peak annual business opportunity for Micro, Small and Medium Enterprises (MSMEs) across consumer-oriented sectors in India. With discretionary spending rising sharply, these months contribute 35-40% of annual revenues for MSMEs in retail, consumer goods, apparel, homeware, handicrafts among others. E-commerce entities accelerate targeted promotions across this duration, lining up attractive deals, new product launches, influencer engagement, contests and personalized offers to attract high intent shoppers.

With the onslaught of the Covid-19 Pandemic, there has been a drastic change in consumer buying behavior & patterns in metro cities and this can be seen in the festive season too. E-commerce platforms have witnessed tremendous growth during festive sales, with order volumes expanding from US$ 3 billion during the 2019 season to US$ 5.7 billion in 2022, reflecting a CAGR of 23%. Categories like fashion, smartphones, consumer electronics and home appliances see maximum traction. With lockdowns and social distancing measures in place, more consumers have shifted to online shopping and become more open to purchasing from small, local businesses.

A continued shift in consumer and merchant behaviour, matched with strong investor confidence, has ushered India into its 'Digital Decade' and set the country on a path to reach a US$ 1 trillion. consumer internet economy by 2030. Digital services are fast becoming integral to India's 700M+ internet users, which includes 350M digital payment users and 220M online shoppers. As India undergoes a dramatic boom that will see household consumption doubling by 2030, digital commerce will invariably become even more entrenched in Indians' everyday experience*. E- commerce platforms have aided small enterprises in rapidly expanding from a local customer base to a nationwide reach.

 

UPI Payments which played a pivotal role in financial inclusion also paints a very promising picture. According to the Ministry of Finance, the total digital payment transactions volume increased from 2,071 crore in FY 2017-18 to 13,462 crore in FY 2022-23 at a CAGR of 45%**.

Consecutively, the Open Network for Digital Commerce (ONDC) has also emerged as a game- changing initiative based on an open-source network aiming to democratize e-commerce opportunities for micro, small and medium sellers in India. ONDC's commitment to vernacular interfaces and enhanced logistics through regional providers maximizes the ability for MSMEs to tap into rising demand from Tier 2/3 markets during seasonal high-spend cycles.

 

*https://www.bain.com/insights/e-conomy-india-20/23/

**https://pib.gov.in/PressReleasePage.aspx?PRID=1988370

Introduction

This, combined with accessible digital payment methods like UPI, have made online purchasing much easier, while simplified taxation norms, like replacing multiple state taxes with a single GST, have reduced compliance issues for online sellers by eliminating octroi and tax compliances set by states. Lastly, the spread of logistical infrastructure network across the different Indian geographies have made it possible for sellers to reach distant customers. Planned investments of Rs 22 lakh crores, integrated road-rail connectivity, UDAN Scheme to expand airport network and Railway Freight Corridors have made it easy to access pin codes stretching to rural India. Growth of logistics providers have enabled quick and reliable product deliveries. Platforms like Shiprocket, ElasticRun, and Shyplite that offer access to affordable logistics for single truckloads have eased fulfillment costs for MSMEs inordinately increasing sales potential. These factors have cumulatively created a vibrant ecosystem for ecommerce and boosted online sales across India. This report intends to show the effect of these factors & trends & how the frictionless payments, streamlined logistics and favorable policies have shaped the emerging market dynamics from the point of view of the MSMEs who have tried to align themselves with the Post Covid World. India SME Forum & FIRST has actively advocated for MSMEs to embrace digital transformation. This report will specifically measure the impact of this digital push on MSMEs, with a focus on those who have adopted e-commerce. Notably, there is a gap in existing research, and this report aims to fill that void by being the first comprehensive survey to help MSMEs measure the impact of adopting digital practices on their businesses.

The objective of the report is to understand the changes in consumer behavior especially after COVID-19 that has led to an increase in online buying and with easy accessibility to internet, we have seen customers from tier-2 and 3 cities buying more through e-commerce. While initially the major share of online buyers was restricted to Metros and Tier 1 & 2 cities, today, a considerable portion also comes from the smaller towns and rural areas. Rapid adoption beyond metro cities is powering expansion, with e-tailers revealing that Tier 2 and 3 cities drive nearly 65% of festive revenues, under lining the vast headroom available as small-town India goes online. This report offers a comprehensive analysis of the state of e-commerce within the context of peak festive shopping seasons in India and the contribution of e-commerce towards the revenues of Micro, Small & Medium Enterprises in India.

The multifaceted insights provided will serve as a valuable resource for diverse stakeholders, ranging from marketplace entities to policy regulators and small business owners. The Government of India's initiative like Digital India and ONDC, etc., have made the e-commerce ecosystem transparent for both sellers and buyers. The report also touched on the pain points of online MSMEs and highlighted the problems related to government and industry regulators/practitioners. This report aims to conduct a thorough examination of critical business metrics, encompassing sales revenues, order volumes, sales growth rates, pricing tiers, and target demographics. The focus is on understanding emerging shifts in attitudes and online buying intensity from a consumer perspective during festive sales. Furthermore, an in-depth assessment of seller experiences and operational capacities, this includes evaluating the efficacy, trust, and adoption levels of key e-commerce platforms.

The Methodology

The Forum for Internet Retailers, Sellers & Traders (FIRST) has been dedicatedly working towards bringing the practice of adopting Digitalization to the forefront. In this quest, FIRST has successfully approached and educated around 67,392 MSMEs across India in the last 2 years and continues to do so. These MSMEs are the members of the India SME Forum and its constituent supporting organizations and federations.

The survey, conducted by the India SME Forum aims to comprehensively examine the impact of e-commerce sales during the festive season and the increasing adoption of the Direct-to-Consumer (D2C) approach among Micro, Small, and Medium Enterprises (MSMEs) across India.

To ensure precision in data collection, a thorough questionnaire was formulated through extensive deliberation and analysis. The final questionnaire format was designed to facilitate the gathering of specific data points, thereby streamlining both qualitative and quantitative analysis. The 67,392 MSMEs registered under FIRST were approached for data collection for the survey which commenced with the distribution of survey emails in July 2023. Subsequent reminders were sent via SMS and telephonic outreach to enhance response rates.

The initial phase of the survey garnered a total of 34,263 responses. Among these, 32,472 responses were identified as fully complete and comprehensive. However, 1,791 respondents left the survey incomplete and were consequently excluded from consideration for the purpose of this report. From the pool of 32,472 respondents, the study narrowed its focus to the subset of 22,073 respondents who reported that they were already actively engaged in online selling. These respondents were then progressed to Section 2 of the survey for more in-depth analysis.

Highlights of the Survey

 

v 67.9% of the respondents are currently involved in online selling, while 28% plan to start soon, highlighting widespread e-commerce participation.

v Over 50% of sellers reported a significant increase in sales, and 41.7% experienced an 80- 100% expansion of their customer base after adopting e-commerce.

v Trust remained a cornerstone in the e-commerce ecosystem, with wide customer reach (100%), company reputation (99%), and a robust seller ecosystem (95%) cited as the top three reasons driving seller trust in e-commerce websites.

v MSMEs focus on stocking up inventory, increased advertising, new product launches, and workforce additions as preparative strategies for the festive season.

v 14,982 respondents reported a 30-40% increase, and 1,795 experienced a boost of over 50% in festive season sales.

v Nearly 80% of sellers generated their revenues from online and e-commerce sales, with 60% doubling their sales and 90% registering a minimum 30% YoY increase in online sales.

v Tier 2 & Tier 3 cities played a significant role, constituting 41.31%, followed by metropolitan cities at 36.62%.

v Onboarding difficulties, high returns, lack of seller support, and tax complexities emerge as major pain points for e-commerce participants.

v Amazon India leads with 38%, followed by significant preferences for Flipkart, Myntra, and Meesho.

v A noteworthy 57% of respondents view e-commerce as an ideal Direct-to-Consumer (D2C) platform, leveraging market reach and trust.

v Digital India, Telecom and the UPI revolution are primarily responsible for sellers joining e- commerce platforms.

v 36.37% of respondents advocate for changes in GST guidelines to simplify compliance processes.

 

 

Digital Transformation Underway

 

According to the India Brand Equity Foundation's e-commerce industry report 2023, the last three years have seen a rise in online shoppers by 125 million and is expected to increase by another 80 million by 2025*. According to a report by Deloitte India, as India moves towards becoming the third-largest consumer market, the country's online retail market size is expected to reach US$ 325 billion by 2030, up from US$ 70 billion in 2022, owing largely to the rapid expansion of e- commerce in tier-2 and tier-3 cities**.

The survey reported that a majority of the respondents, that is 22073 (67.98%) were inclined towards online selling, while an additional 9108 (28.05%) of the respondents express their intentions to venture into online sales. Surprisingly, 1291 respondents (3.98%) indicated no plans to go online, despite the active efforts of FIRST (Forum for Internet Retailers, Sellers & Traders) encouraging MSMEs to establish an online presence, which suggests that there is still a considerable amount of confusion and prevalent myths in the market, hindering some individuals from making the transition to online selling.

The Open Network for Digital Commerce (ONDC) has also emerged as a game-changing initiative based on an open-source network aiming to democratize e-commerce opportunities for micro, small and medium sellers in India. ONDC's commitment to vernacular interfaces and enhanced logistics through regional providers maximizes the ability for MSMEs to tap into rising demand from Tier2/3 markets during seasonal high-spend cycles.

 

*https://www.ibef.org/industry/ecommerce

**https://www2.deloitte.com/in/en/pages/about-deloitte/articles/future-of-retail-emerging-landscape-of-omni-channel-commerce-in-India.html

From Third Party or No Brands to Brand Owners

 

With the surge in India's e-commerce sector, the survey underscores a growing awareness among businesses regarding the importance of intellectual property (IP), particularly trademarks. A substantial 55.13% (17902) of respondents reveal they have already registered trademarks, with an additional 29% (9271) currently in the process of doing so. Only 16% (5299) indicate a lack of trademarks in their portfolio. This demonstrates that 27,173 out of 32,372 respondents are aware about the IPR and its importance in their growing business.

The success of these awareness efforts can be attributed to the initiatives undertaken by the India SME Forum (ISF) & its Centre of IP Research, Promotion and Facilitation (CIPRPF) which has played a pivotal role in educating entrepreneurs about trademarks and their significance. This success is underscored by the impressive 85% success rate of ISF campaigns related to intellectual property rights (IPR).

This trend aligns with the broader landscape of intellectual property registrations in India, which has witnessed a remarkable upswing. According to 2022 data from the World Intellectual Property Organization (WIPO), India ranks fifth globally in annual trademark applications and sixth in patent filings, consistently outpacing global averages. A report by the Organization for Economic Cooperation and Development or the OECD talks about the rise in risks of counterfeiting with selling products online through e-commerce platforms. Thus, as more businesses sell their products online it becomes essential for them to register for trademarks and protect their intellectual property**. A rise in e-commerce retail can thus also be correlated to the rise in trademark registrations.

 

*https://www.managingip.com/article/2ban50tiglik/4wtigBaskcg/expert-analysis/local-insights/india-a-statistical-analysis-of-trends-in-ip-rights *https://www.oecd-library.org/sites/2abaae54-onv/index.html?itemid-%2Fcontent%2Fcomponent%2F2abaa054-on

D2C Gains Popularity in India

 

 

Among the 22,073 respondents, a significant majority-19,228 respondents are oriented towards the B2C segment, showcasing a strong emphasis on direct consumer engagement. Additionally, 14,783 respondents are actively involved in the D2C segment, which has experienced heightened popularity, particularly through e-commerce platforms, in the post-pandemic era. The India SME Forum (ISF) has actively promoted the D2C model, leveraging success stories from the brands like SUTA, BLUE TEA and AMRAPALI.

In terms of other market segments, 1,882 respondents focus on B2B segment and a smaller yet noteworthy group of 833 respondents engage in B2G segment. It's important to note that this classification pertains specifically to respondents who have taken their businesses online, and the numbers could be higher if offline-mode businesses were also considered. High competition from large established brands, limited marketing budgets and lack of bargaining power make it tough for MSMEs to get shelf space at modern trade stores or tie ups with major distributors. Additionally, small production volumes, inconsistent quality and inability to offer credit terms or discounts like bigger players which further restricts MSME retail access. MSMEs also face challenges meeting diverse state regulations and managing logistics for widespread distribution. As of July 2023, an impressive 65.42 lakh sellers are registered on GeM, including 8.32 lakh MSMEs. ISF has further strengthened this initiative by signing a Memorandum of Understanding with GeM, facilitating collaboration to conduct capacity-building workshops and training programs related to the portal. This partnership aims to enhance the overall SME ecosystem, while also promoting key initiatives such as Womaniya, Startup India, National Livelihoods Mission, and more.

According to a report by Shiprokcet, the Indian D2C market was approx. $12 Billion in 2022 with a CAGR of 40%, which is expected to reach around $60 Billion by 2027. India is expected to be the third largest economy by 2030 with ~40% of the population living in urban areas; India to have 1.3 billion+ smartphone users and internet users and ~50 million online shoppers by 2030.

 

D2C brands are scaling rapidly, these brands are reaching INR 100 Cr milestone in 3-5 years after launch.*

D2C model leveraging e-commerce is gaining major traction among Indian MSMEs to boost sales & reach new markets. MSMEs can sidestep traditional retail channels & distributors while gaining visibility through targeted digital marketing & enables MSMEs to easily list and sell products without heavy inventory or warehousing costs. It provides access to millions of potential buyers & keeps overheads low.

 

*India D2C Report 2022 by Shiprocket

Omni-channel is IN

 

The survey revealed that a majority of respondents that is 19,783 engage in selling their products through various online channels, with a notable presence on e-commerce platforms such as Amazon, Flipkart, and Snapdeal. Additionally, 10,982 respondents utilize social media platforms like Instagram and Google, indicating a growing trend and among the respondents, 9,372 also mentioned selling ontheir own websites or apps, while 9,082 opted for third-party apps like WhatsApp.

India SME Forum (ISF) has been actively pushing for the establishment of individual business websites instead of solely relying on e-marketplaces. This strategy is likened to having one's own shop as opposed to operating within a mall. This holistic and diversified approach, often referred to as an omnichannel strategy, enables businesses to engage with customers across various platforms and channels, thereby enhancing their reach and adaptability in the dynamic digital landscape.

E-commerce platforms, especially Amazon, emerged as a predominant choice for online product sales, attributed to several advantages for businesses. These advantages encompass a swift selling process, cost reduction, affordable marketing, extensive reach, flexibility, and easy exportation. Initiating sales through established marketplaces serves as a pragmatic approach for early traction, providing a launch pad for businesses.

 

Selecting Platforms

 

 

In the e-commerce landscape, the survey uncovered a wishlist of factors that are crucial for instilling trust among sellers. Nearly 99% of respondents, totaling 21,982, expressed a strong preference for platforms with a wide customer reach, emphasizing the significance of reaching a diverse audience, followed by the reputation of the founder/marketplace as noted by 21,932 respondents. A robust seller ecosystem was identified as pivotal by 20,874 sellers, highlighting the importance of a collaborative and supportive community. Proactive seller support, along with the availability of regular and simplified payment options, and logistical assistance, rounded out the wishlist, showcasing the sellers' desire for comprehensive and reliable support systems from e-commerce platforms.

Online Catalyzes Business Growth by 50%

 

 

More than 50% of the respondents, that is 12,983 businesses have had a substantial boost in sales of more than 50%, with another 3,762 respondents having stated that they have seen an increase between 40% 50%, whereas 4,160 respondents have seen an increase between 10% 40%. The ability to tap into a worldwide audience has proven instrumental in driving substantial sales improvements for a considerable number of businesses and the importance of worldwide market is evident in its capacity to offer businesses unparalleled opportunities for expansion, diversification, and increased competitiveness in the ever-evolving landscape of global commerce.

On the other hand, only 1,095 respondents experienced less than a 10% sales uptick, and a mere 73 reported no overall revenue increase.

The advent of e-commerce giants like Amazon and Flipkart has notably elevated sales income, particularly in the D2C sphere. Social commerce in India is poised for exponential growth, projected to reach US$ 16-20 billion by FY25, driven by an impressive CAGR of 55-60%.*

 

*https://www.ibef.org/industry/ecommerce

New Customer Acquisition Easier Online

 

 

The survey findings reveal a notable positive impact on customer base expansion following the adoption of an online presence. A substantial 48.97% of respondents, totaling 10,810 businesses, reported a remarkable increase of over 80% in their customer base. Additionally, 5,082 respondents noted a significant growth ranging between 50% to 80%, while 5,234 businesses experienced a customer base increase ranging from 10% to 50%. Only 877 respondents reported a modest increase of less than 10%, highlighting the overall positive trend in customer acquisition through online channels.

In contrast, a mere 70 respondents expressed no increase in their customer base despite establishing an online presence. This minority underscores the need for targeted training and education initiatives to empower these businesses in leveraging digital platforms effectively.

There has also been a rise in the customer base on e-commerce platforms as was seen through the analysis of the India Brand Equity Foundation's e-commerce industry report 2023 which indicates that in the last three years the online shoppers have risen by 125 million and this number is expected to further increase by another 80 million by the year 2025*.

 

*https://www.ibel.org/industry/ecommerce

Online Drives Higher Sales & More Customers

The survey results highlight the substantial positive impact experienced by businesses selling on e-commerce platforms, particularly in terms of increased sales volume and access to a broader customer base with high responses at 19,083 & 18,091 respectively. The geographical liberation afforded by these platforms stands out as a significant driver, with 7,822 responses, enabling businesses to reach customers far beyond their local regions. Moreover, 9,782 respondents believe that venturing online has significantly improved their brand recognition, which indicates that the exposure gained through e-commerce platforms has played a crucial role in increasing the visibility and awareness of their brands among consumers. Businesses are also succeeding in establishing a more enhance customer relationship management system with 7,620 responses being in favor of this positive impact. Another noteworthy finding is that over 7,021 respondents feel that e-commerce has led to a reduction in marketing costs, indicating that the efficiency and reach of online platforms have allowed businesses to achieve effective marketing results with lower expenses, contributing to improved cost-effectiveness.

Additionally, it is also highlighted that businesses are still facing complications in retrieving payments and widening their brands visibility. Lastly, the discrepancy in experience between ease of sales vs ease of post-purchase fulfillment payments (2,821 responses) is an issue warranting action from policy makers by way integration of payment settlement platforms and seller-side fintech innovations to eliminate leakage between digital order acquisition and realization cycles. The aspect of brand visibility too merits more discourse. The lower agreement of 3,892 on actual conversions reveals gaps in brand positioning, communication strategies once buyers land on product pages. This indicates the scope for further education of sellers on effective online merchandising. The lowest responses was garnered for improved inventory management at only 622. Therefore, while validating the directional positive impact of e-commerce adoption, the survey also flags important nuances requiring addressing through supportive interventions for sustaining seller success online.

Digital India & UPI Drivers of Transformation in MSMEs

 

 

A substantial majority of respondents, accounting for 17,094, attributed their motivation to the transformative effects of the Digital India initiative, the Telecom Revolution, and the widespread adoption of Unified Payments Interface (UPI). The Digital India program, a catalyst for the escalating prominence of e-commerce in India, has played a pivotal role in fortifying digital infrastructure. As of February 2023, this initiative has resulted in an impressive 1.2 billion telecom subscribers and a staggering 30 billion UPI transactions within a five-month span, establishing a robust foundation for the burgeoning growth of e-commerce*.

Furthermore, a noteworthy segment of respondents, totaling 13,892, stated that they were amused by the young consumer market with disposable income and 7,088 respondents underscored that their engagement with e-commerce platforms was spurred by the evolving aspirations of Indian consumers. This signifies a growing awareness among businesses of the shifting preferences and expectations of the consumer base, prompting a strategic realignment

towards the dynamic landscape of online commerce.

One of the factors leading to a change in consumer aspirations is the rise in household incomes. It is anticipated that the elites will make up at least a third of the total consumption by 2025. This will also be coupled in an increase in urbanization and the rise of nuclear family systems in India which will all contribute to higher household income**.

Some other factors that were responsible for sellers to join e-commerce platforms includes, encouragement of startups in India, accessibility to the international marketplace and ITES capabilities in India.

 

*https://www.ey.com/en_in/india-at-100/digitalizing-india-a-force-to-reckon-with

**https://www.bog.com/publications/2017/marketing-sales-globalization-new-indian-changing-consumer

Sellers Rely on Innovation to Attract More Consumers

 

 

In a comprehensive exploration of seller preparedness during the festive season, the survey reported that the majority, comprising 12,099 respondents, emphasized the significance of stocking up inventory as a primary measure. Consumer spending during the festive season increases by about 12% on clothing and about 14% on recreation, entertainment and leisure. Therefore, businesses prepare to meet the rise in demand by increasing their stocks*.

In addition, 7,522 respondents emphasized the strategic introduction of new products during this specific timeframe. Acknowledging the escalated consumer demand prevalent during festive seasons, the unveiling of new products not only addresses this surge in demand but also establishes a competitive edge within the dynamic market. A 2022 report released by Meta aligns with these insights, revealing that an impressive 93 percent of consumers express a willingness to explore new brands and products during festive periods. This observation underscores the efficacy of product launches as a strategic approach to fostering business growth during the festive season.

Furthermore, businesses have undertaken additional preparedness measures to effectively navigate the festive season. This includes a notable increase in advertising expenditure, as launching seasonal discount programs across a range of products serves to attract customers. Additionally, the digitalization of operations has been implemented to enhance overall efficiency, complemented by the recruitment of supplementary staff to adeptly manage the seasonal surge in demand. These comprehensive strategies collectively position businesses to navigate challenges and capitalize on the myriad opportunities presented during the festive season.

 

*https://www2.deloitte.com/in/en/pages/consumer-business/articles/indian-consumers-to-spend-more-on-luxury-this-festival-season.html

Online Spurs Over 30% YoY Growth

 

 

The festive season brought a substantial surge in online sales for businesses who understood how to harness the potential of selling online, with an impressive 14,982 respondents experiencing remarkable growth ranging from 30-40%. 4,879 respondents reported an increase in the range of 40-100%, emphasizing the festive season's pivotal role in propelling sales figures. Additionally, 1,949 respondents experienced growth between 10%-30%, followed by a modest 125 respondents reporting a growth of less than 10%, reflecting varying degrees of success during the festive season. Lastly, 138 respondents indicated no increase in online sales compared to the previous year, providing a comprehensive view of the impact on online sales across different segments.

According to Unicommerce, E-commerce order volumes grew handsomely this festive season, increasing by approximately 37% during the festive season sale of 2023 as compared to the festive sale period in 2022. The gross merchandise value (GMV) also saw an increase of 22 per cent during the same festive period. The success of the festive season sales in parts may be attributed to attracting discounts on the online marketplaces and robust advertising campaigns. This has helped marketplaces record an impressive year-on-year (YoY) order volume growth of 39%. Brand websites, on the other hand, also reported a strong 23% increase in e-commerce order volumes*.

 

*https://infowordpress.s3.ap-south-1.amazonaws.com/wp-content/uploads/2023/08/14114209/India-Ecommerce-Index-2023.pdf

Over 80% MSMEs Generate More Revenues Online

 

The survey reported a dominant trend in revenue generation during the festive sales period, with a substantial 81.81% of respondents attributing the majority of their revenue to online and e- commerce sales. This underscores the pivotal role of digital platforms in driving sales and revenue growth for businesses during festive seasons. The widespread adoption of online channels is evident in the significant majority favoring this route for revenue generation.

In contrast, 9.8% of respondents reported sales from both online & offline channels and the remaining 8.29% of the respondents noted that they received the most revenue for their products from offline sales during the festive season. While a minority, this group emphasizes the continued relevance of offline sales channels for certain businesses, highlighting the importance of maintaining a diversified sales strategy to cater to varying consumer preferences and market dynamics.

 

Consumers in Tier 2, 3, 4 & Rural Areas Drive MSME Orders Online

 

The survey's analysis of online and e-commerce sales order traffic reveals intriguing patterns in the geographical distribution of consumer engagement. In a significant shift, the majority of respondents that is 41.31% identified Tier 2 and Tier 3 cities as the primary source of their online order traffic. This trend reflects the expanding influence and increasing online participation of consumers in smaller urban centers. As these cities embrace e-commerce, businesses targeting these areas are poised to benefit from the growing trend and capitalize on the evolving consumer behavior. In major urban centers, specifically metropolitan cities, a notable 36.62% of respondents reported the highest order traffic.

The data also highlights the presence of online shopping in tier 4, small towns and rural areas with 22.05% of respondents reporting the highest order traffic from such regions. This suggests a growing acceptance of digital transactions beyond urban boundaries, presenting businesses with opportunities to cater to previously underserved markets.

 

Tier 2 & 3 Cities Drive Customer Growth

 

 

Businesses navigating the festive season landscape must strategically balance their engagement with existing customers and the pursuit of new customer segments, especially in emerging urban markets. Geographically, Tier 2 and Tier 3 cities took center stage, outpacing metros in order traffic and signaling a significant shift in consumer behavior.

The majority of respondents that is 42.15% identified new customers from Tier 2 and Tier 3 cities as the primary source of their festive season orders, which underscores the expanding footprint of businesses into smaller urban centers during festive periods, highlighting the growing interest and participation of consumers in these areas in the online shopping experience. 24.43% of respondents observed that the bulk of their festive season orders stemmed from loyal existing online customers, showcasing the enduring impact of customer retention efforts.

Moreover, 19.72% of respondents reported a significant contribution from new customers in metro cities, affirming the ongoing relevance of major urban centers in festive season sales. Only 13.69% of respondents expressed that metros tend to constitute a substantial portion of their business during the festive season.

Rising disposable incomes owing to economic growth in smaller urban centers, has created an aspirational consumer base of youth from Tier 2 & 3 cities. For these youth, buying branded or trendy products online is seen as a reflection of their modern outlook and a way of keeping up with their urban peers. Festive occasions loosen budgets further for such purchases and the heavy discounts and deals offered during festive sales provide further incentives for them to indulge in online shopping. Emulating urban consumption habits also drives small town youth who are more open to shopping online versus older consumers.

 

Overregulation of Online Retail Cited as Major Challenge

 

 

A predominant challenge highlighted by a majority that is 13,273 respondents in the e-commerce sector revolves around the issue of over-regulation in online retail. This indicates perceived gaps in policy frameworks governing e-commerce platforms versus brick-and-mortar stores, posing divergent compliance burdens between online and offline sellers could disadvantage e- commerce businesses. The overregulation of e-commerce compared to traditional retail creates an unequal regulatory burden for online sellers. Additionally, 12,097 respondents emphasized that taxation poses a significant hurdle for numerous e-commerce sellers, citing the complex nature of tax norms for online selling.

Further challenges identified by respondents include difficulties in onboarding platforms, a high rate of product returns, absence of robust seller support, training requirements, and the impact of frequent changes in rules and regulations. These collective challenges underscore the multifaceted landscape that businesses in the e-commerce domain navigate, necessitating a strategic approach to address regulatory, tax, and operational complexities.

 

E-commerce Platforms

The survey further reported the most favored platform preference of the respondents in four different categories. From the available general marketplace of e-commerce platforms, Amazon emerged as the most favored choice, followed by Flipkart, Meesho, IndiaMart, Alibaba, Snapdeal, and Shopclues. Amazon's prominence in this category can be attributed to its extensive global reach, offering sellers a multitude of benefits such as valuable insights, efficient inventory facilities, a broad market reach, and robust marketing tools. These factors collectively position Amazon as a highly favorable platform for sellers seeking a versatile and impactful online marketplace.

 

 

In the realm of fashion and lifestyle e- commerce, Myntra emerged as the top choice among respondents, followed by Ajio, Limeroad, Nykaa, and Voonik. Myntra's popularity in this category is attributed to its status as a major fashion and lifestyle hub, offering a diverse range of products and brands. The platform's extensive variety and brand offerings make it a preferred choice for sellers operating in the fashion and lifestyle sector, seeking a prominent and versatile platform to showcase and sell their products.

 

E-commerce Platforms

 

The notable trend in the realm of grocery & food delivery services, Blinkit emerged as the most favored platform, surpassing competitors such as Swiggy, Zomato, Big Basket, Zepto, and Eat Club. This preference for Blinkit is attributed to its reputation for swift deliveries, particularly through collaborations with local stores. Positioned as the largest e- grocery platform in India, Blinkit has gained widespread popularity, making it the preferred choice for fulfilling diverse grocery and household requirements.

 

 

Pepperfry was identified as the preferred choice for furniture and home decor, followed by Urban Ladder. Pepperfry has solidified its position as the leading e- commerce platform for furniture, making it a favorable and prominent choice for sellers operating in the furniture and home decor industry.

 

D2C Model- Key for MSME Growth

 

A predominant share of survey respondents reported multiple factors contributing to the suitability of e-commerce as a Direct-to- Consumer (D2C) approach. Key considerations include leveraging the trust associated with e-commerce platforms for effective product sales, streamlined access to products, and an extensive reach to potential customers. D2C businesses express confidence in the reliability of e- commerce channels, emphasizing the ease with which potential buyers can access their 15000 products and the broad customer reach facilitated by these platforms. In contrast, a minority of 134 respondents favors the traditional offline marketing approach.

 

A sizeable portion of respondents that is 8,027, highlighted the need for revisions in guidelines pertaining to GST. This indicates that the current norms around these aspects pose certain challenges. Under current GST norms, traditional businesses with less than Rs. 40 lakh turmover are exempt from obtaining GST registration. However, on e-commerce platforms, there is no such exemption. Even sellers with very modest turnover are mandated to have GST registration to enable inter-state sales.

Moreover, innovative promotion avenues through influencer marketing is a game changer for D2C brands but despite all of this, Micro-entrepreneurs have to navigate complex GST registration, filing processes diverting bandwidth from core operations. Additionally, 7,293 respondents express the need for changes in return guidelines, emphasizing the financial burden imposed by expensive retum processes. Streamlining return filing periodicity, introducing automated reconciliations, and provisions for amendment can improve compliance.

 

Another concern highlighted by 3,758 respondents pertains to the complexity of Tax Deducted at Source (TDS) guidelines, suggesting a desire for clarity and simplification in this area due to need of rationalization to avoid unwarranted tax burdens. Suitable changes in TDS applicability and payment can prevent locked up capital for the sector. Moreover, 2,092 respondents have expressed the need for changes in Guidelines on Quality & Standards. Clearer guidelines on safety, reliability, and performance metrics tailored for e-commerce would help ensure quality consistency, enable self-compliance, and protect consumer interests. Updated standards would encourage voluntary adherence and cultivate customer trust in the e-commerce ecosystem. Meanwhile, a notable 808 respondents expressed contentment with the current guidelines and prefer no changes. These insights shed light on the multifaceted challenges businesses face.

 

Way Forward

As economies increasingly digitalize, MSMEs will need to adopt digital solutions to compete and thrive. Enterprises that are not connected with e-commerce platforms are likely to face greater difficulty in accessing markets at a time when integrated enterprises are making deeper inroads into markets with the use of platforms. Given that integrated firms perform better on average than non-integrated enterprises, inequalities in market access caused by e-commerce platforms can accentuate imbalances between these firms. The e-commerce industry has emerged as a catalyst for the transformative growth of Micro, Small, and Medium Enterprises (MSMEs) in India, fostering development through funding, technology infusion, and targeted training initiatives. This positive influence has not only empowered local businesses but has also triggered a ripple effect in adjacent industries. As India's e-commerce sector propels towards becoming the world's second-largest market by 2034 by overtaking the United States, rapid expansions and technological innovations such as digital payments, hyper- local logistics, analytics-driven customer engagement, and digital advertising are anticipated to be pivotal contributors to its burgeoning success*.

The trajectory of the Indian e-retail business is marked by ambitious projections, with expectations of engaging 300-350 million shoppers over the next five years. The online Gross Merchandise Value (GMV) is poised to surge to US$ 100-120 billion by 2025, according to a comprehensive report by the Indian Brand Equity Foundation. Recognizing the potential embedded in this growth, MSMEs are encouraged to leverage initiatives led by prominent platforms like Amazon and Flipkart, strategically enrolling small sellers to bolster their e-commerce presence. Governmental efforts to fortify the e-commerce landscape for small businesses should be prioritized, particularly during festive seasons, where these enterprises showcase their resilience and prosperity in the online realm. However, challenges such as complex taxation policies, intricate return procedures, delayed payments, and obscured fees on major e-commerce platforms necessitate meticulous attention. Addressing these issues through equitable contracting and robust dispute resolution mechanisms is imperative for fostering a conducive environment. Simultaneously, enhancing cyber security readiness is paramount to safeguard the interests of businesses operating in the digital sphere. As India's SMEs demonstrate their prowess in thriving during the festive season, the e-commerce wave presents a remarkable opportunity for reaching new customers and steering post-pandemic growth. Collaborations, supportive policies, and proactive preparedness will be instrumental in harnessing the potential of e-commerce as a game- changer for small and medium-sized businesses in India. Furthermore, the platform's experiencing a surge in festive exports from India underscores the global appeal of Indian products. Top export categories, including artificial jewelry, cosmetics, grooming essentials, clothing, and accessories, exemplify the diverse offerings driving demand in key markets such as the United States, the United Kingdom, Germany, Australia, Canada, France, and the United Arab Emirates. This international demand underlines the platform's role in connecting Indian sellers with a global audience and contributing to the global prominence ofIndian goods during celebratory occasions.

 

*https://www.ibel.org/industry/ecommerce

India SME Forum, the voice of MSMEs in India, has taken the lead in forming the Forum for Internet Retailers, Sellers & Traders, (FIRST India) in order to support the entry of retailers, sellers and traders who have been inducted in the definition of micro, small and medium enterprises under the MSMED Act 2006 on the advice of the Advisory Committee constituted under subsection (2) of section 7 of the MSMED Act 2006.

The Indian retail, trade & commerce sector, representing enterprises based in India, which are in the business of wholesale & retail selling of goods and services, both, offline as well as online to consumers, are all eligible under this change notified on 2nd July 2021.

India SME Forum has pushed for the inclusion of wholesale and retail trade, as activities eligible under the MSMED Act with benefits restricted to priority sector lending, as of now.

Together with Indian policymakers, FIRST India represents over 70,000 traders, merchants and resellers and is committed to help create a conducive policy and ecosystem which will help remove, the biggest obstacles for online merchants to expand their business nationally as well as across-borders.

More information on: www.1stindia.org

 

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DD-30, Second Floor, Nehru Enclave, Kalkaji, New Delhi-110019

 

Mumbai:

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Mumbai- 400053, India