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Did E-commerce Thrive Or Survive in 2023? In this article, we take a look at how the segment has performed this year and the unique trends that were observed

By S Shanthi

Opinions expressed by Entrepreneur contributors are their own.

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In the last few years, particularly after the pandemic, many startups have broken the duopoly of Flipkart and Amazon in India's e-commerce segment. These startups have been tapping into newer segments with their unique business models such as B2B commerce, quick commerce, D2C, e-commerce enablers, among others.

Some sub-segments that found takers during the pandemic, but didn't raise many eyebrows post that would be social commerce and live commerce. In fact, Meesho, once a leading player in the social commerce space pivoted to e-commerce or online marketplace last year.

In the last two years, we also saw many industry conglomerates joining the e-commerce bandwagon and ONDC also making a mark in the space. In addition to this, the rise of e-commerce has paved the way for allied industries like logistics and supply chain tech.

In this article, we take a look at how the segment has performed this year and the unique trends that were observed.

Tier 2, 3 leading the way

In November this year, Amazon said that more than 65 per cent of Prime members who shopped during the festive season were from tier 2 and 3 cities and towns. It is not just Amazon, even D2C players have upped their game in these cities and towns. According to a recent report by Saas-based logistics unicorn Shiprocket, Tier 2 and Tier 3 markets showcased remarkable growth rates, with Tier 2 witnessing an impressive surge from 113% in 2022 to an astounding 179% in 2023.

"Similarly, Tier 3 markets grew from 128% to 138%, indicating burgeoning opportunities in these segments. Mysuru, Udaipur, and Tiruppur emerged as the leading cities in Tier 2 markets, showcasing remarkable potential and growth prospects for e-commerce. Delhi topped the charts in Tier 1 cities in terms of sales volume, closely followed by Bangalore. Notably, Thane surpassed Mumbai to secure the third-largest Tier 1 market position, reflecting evolving market dynamics," said the study.

Focus on offline and omnichannel over D2C

In the last two years, we have seen many digital-first direct-to-consumer (D2C) companies giving traditional brands a run for their money. Brands such as SUGAR Cosmetics, boAt, Mamaearth, McCaffeine, Vahdam Teas and many others have leveraged digital penetration and social media reach to carve a niche for themselves.

According to a report by Statista, in India, the total addressable D2C market is expected to grow by over 15 times from 2015 to 2025. In 2020, the total addressable D2C market was valued at $33.1 billion. By 2025, the total addressable D2C market is forecast to grow almost threefold and reach $100 billion, with fashion and accessories leading as one of the largest D2C segments in India.

However, today these companies are focusing on a hybrid model wherein they are opening stores and taking the general trade route along with focusing on their D2C channels. Hariharan Premkumar, Managing Director and Head of India at DSG Consumer Partners explained with an example, during ntrepreneur India's recently concluded E Live x India Investment Forum 2023 in Mumbai. "As a consumer fund, we are super excited about the next two decades for India as a country. Stars are aligned well in terms of the consumer boom that is set to happen here. We are excited to support consumer founders, but now there is a realization that D2C should be treated as a channel and understand the importance of offline to scale."

According to a report by enablement SaaS platform Unicommerce, FY2023 saw consumer preference move slightly towards marketplaces that witnessed a 31.2% YoY order volume growth during the period. The number of online orders shipped-from-store reported a 44.6% growth during FY2023 compared to the previous financial year, it said. "According to India E-commerce Index' 2023, the eCommerce industry recorded a 26% growth in orders in FY2023 and omnichannel selling, especially in tier 1 cities has been a significant contributor to this figure. With regards to growth, logistics operations will continue to be a critical factor for eCommerce and retail brands," said Soham Chokshi, CEO and Co-Founder, Shipsy.

Cross-border commerce

Last year, many Indian brands focused on cross-border commerce by taking the e-commerce route. Interestingly, various factors have come together to make the cross-border dreams of Indian brands come true. To begin with, there is an uptick in e-commerce usage across the globe. There are also tremendous technological advancements in logistics and payments space. In addition to that, Indian brands are selling quality products at more affordable prices than their global counterparts. Further, every year, around 2.5 million Indians migrate overseas. These Indians are constantly in the lookout for products from back home. And, not to forget the growing influence of social networking platforms, promoting e-commerce.

The Indian government has also been backing global expansion plans of small and medium-sized businesses by initiatives such as the "Make in India" campaign. These factors have increased the trust on Indian brands in Global markets.

Rise of MSMEs on the back of e-commerce

While addressing the B20 Summit India 2023, Prime Minister Narendra Modi said that India has become the face of the digital revolution in the era of Industry 4.0 where Micro, Small and Medium Enterprises (MSMEs) will play a pivotal role.

Since the pandemic, more and more MSMEs have thus been able to access national and international markets with ease, particularly last year. This has led to increased sales and business growth. Selling online has also helped MSMEs boost their profits by giving them more control over their inventory and distribution. It has helped them go beyond the geographies they are present in.

According to a recent report by Redseer Strategy Consultants, as e-commerce platforms adopt friendly policies, MSMEs are expected to drive $50 Bn of e-tailing sales by FY2027. The consulting and advisory firm also said that the retail market in India is projected to burgeon to $ 1.4 trillion by 2027, and MSMEs are poised to account for an impressive 65-75% of this market share.

Sustainable business models

"In 2023, India's e-commerce sector experienced a pivotal year, emphasizing the need for sustainable business models over rapid, often unsustainable growth. This year marked a significant shift from aggressive customer acquisition costs (CAC) to focusing on delivering real value to customers and ensuring repeat business. As funding sources dried up, we saw a clear differentiation between sustainable models and those reliant on heavy discounting and marketing. Firms that failed to adapt faced challenges, while those prioritizing sustainable growth and customer value navigated the landscape more effectively," said Anirudh A Damani, director, Artha Group.

Distributed funding

Funding was distributed across stages in 2023. "The Indian e-commerce sector secured over $2billion funding, with significant deal activity observed in sub-sectors such as apparel and accessories, personal products, food products and retail. It was also distributed across stage, with over $200 million in seed and early stages, over $300 million in growth stages and over $1.4 billion in late stages," said Vijay Iyer, managing director, Merisis Advisors.

Noteworthy companies that received funding include Lenskart, BlueStone, Purplle Wakefit and Giva. E-commerce logistics company that received substantial funding during 2023 in this space include Xpressbees from Ontario Teacher's Pension Plan, Blackstone, TPG, ChrysCapital and Shiprocket from McKinsey. "Funding in the sector is expected to keep growing as Indian e-commerce sector demonstrates consistent growth. However, we don't see the funding activity reviving to FY'22 levels," added Iyer.

Conversational AI drove the sales

This year there was an increased realization about the use of conversational AI to drive business growth, sales, and increased conversion. Just like other sectors, technological advancements has always helped e-commerce stay on top of the game. In 2023, we also saw a lot of importance given to conversational AI. "Moving ahead, AI-powered agents and co-pilots will be more capable of identifying issues, recommending accurate solutions and even escalate issues if needed, empowering businesses to achieve 10X productivity. Similarly leveraging AI and all the data that resides across the different parts of a supply chain, businesses will be able to predict outcomes 10 times more accurately. Then AI -powered chat will completely alter how enterprise software is used," said Chokshi.

Increased global interest

India's strategic position and substantial consumer base continued to attract global businesses this year as well. "The government has continually been supporting entrepreneurs through various initiatives and schemes as announced in the Union Budget 2023-2024 as well as the prevalent Foreign Trade Policy," said Pavan Ponnappa, Head - India, South Asia & UAE Cross Border Trade at eBay. The top-performing categories on eBay this year were luxury jewellery like bracelets, diamond necklaces, leather jackets, rugs, four-wheeler parts, heavy equipment, metalworking products, ayurvedic products and herbal remedies, among others.

However, despite the remarkable growth, SMBs were still faced with various challenges, which platforms like eBay are working hard to resolve. "These included issues in logistics and shipping, export processes and associated charges and many more. To overcome these challenges and equip the sector for the next phase of global expansion, it is crucial to foster cooperation among the government, online marketplaces, technology and logistics services providers, and financial Institutions," added Ponnappa.

S Shanthi

Former Senior Assistant Editor

Shanthi specializes in writing sector-specific trends, interviews and startup profiles. She has worked as a feature writer for over a decade in several print and digital media companies. 

 

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