India's urban e-commerce thriving amidst economic challenges: report

Pandemic-induced restrictions accelerated the adoption of e-commerce.

There is a noticeable growth in urban spending in India, particularly in e-commerce platforms, amidst challenges such as rising input costs, weaker rural demand, and high inflation due to geopolitical tensions, KPMG’s Toward Seamless Commerce report revealed.

“Spending in urban areas is still growing more rapidly as e-commerce platforms appeal to affluent consumers buying new, premium products, and less-affluent shoppers seeking bargains,” the report said.

It also highlighted that pandemic-induced restrictions accelerated the adoption of e-commerce.

Luxury brands also demonstrated resilience during this period, capitalising on their strengthened online presence to attract aspirational Millennials and Gen Z consumers.

The Indian government has launched the Open Network for Digital Commerce (ONDC) to promote e-commerce amongst the estimated 14 million 'Kirana' (local neighborhood stores) and online startups  to provide transparent and real-time pricing. 

Moreover, digital brands are also thriving and leveraging social media for consumer outreach and utilising large warehouses for product storage. Innovations like 'buy now, pay later' models are offering consumers new financing options, driving spending. 

However, last-mile deliveries remain a costly challenge for e-commerce players, especially for low-value items.

“Having had a relatively underdeveloped physical retail infrastructure, India has leapfrogged towards e-commerce to become one of the world’s leading digital markets,” the report said.

The number of online shoppers in India is projected to surpass 350 million by the 2026 financial year.

Physical stores, particularly malls, are still popular due to India's growing middle class. However, limited real estate and high rents challenge supermarket profitability.

Retailers are now collaborating with distributors and delivery partners to manage online orders, optimise store inventory, and offer click-and-collect services. 

“Whilst enhancing e-commerce platforms, retailers are also making low-to-moderate investments in backend systems and physical stores,” the report stated.

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Investments in backend systems and physical stores continue, with some retailers adopting technologies like virtual reality and 3D gaming platforms enable consumers to access a broader range of products, bridging the gap between physical stores and online platforms. 

'Kiranas' are also partnering with larger retailers to capitalise on their digital infrastructure, expanding product offerings and reach.

Moreover, Indian retailers are tailoring offerings to local tastes to ensure that consumers in smaller towns have access to desired products. 

“Retailers are also trying to shift consumers from low-price to value and convenience, offering a superior experience at a premium price, including sustainable, eco-friendly products and packaging, while training staff to boost footfall,” the report said.

Moreover, multi-channel strategies are also becoming standard and physical stores are increasingly serving as e-commerce warehouses due to last-mile delivery challenges. 

“Building a separate infrastructure for online sales may not be financially viable, especially in groceries,” the report stated. “Having promised fast, free delivery, regardless of order value, online and offline retailers are struggling to profit on orders and may need to adopt delivery fees and minimum basket sizes.”