Digital native brands increased their share of online sales to 40% in 2022, says Redseer Strategy Consultants report

Digital native brands have been gaining share over traditional brands and have increased their share of online sales from 25% in 2018 to 40% in 2022, as per the latest report by Redseer Strategy Consultants.

As per Redseer, digital brands have been a rage over the last few years as online continues to drive retail growth. In terms of category sales, online currently accounts for 53% mobiles, 44% electronics, 20% large and small appliances, 18% fashion, 17% beauty and personal care and 15% home and living.

It further said that ecommerce is expected to growth three times faster than offline and by 2026, online could account for over 25% of sales in most categories, excluding grocery, as per the recent report.

The report was launched during their new age business summit, Ground Zero 7.0. 

The report further said that as the retail market grows from $335 billion to $510 billion by CY2026, 45% of incremental market growth will come from online. Moreover, for a lot of categories such as mobiles, electronics, home and living, large and small appliances and, fashion etc., more than 50% of incremental market growth will come from online.

Some key highlights of the report are:

Digital Native Brands (DNBs) account for 40% of online sales 

Digital native brands have been gaining share over traditional brands and have increased their share of online sales from 25% in 2018 to 40% in 2022. That means that traditional brands are playing only in 60% of the market. 

DNBs as market leaders

As share of online sales in a category increased, digital native brands gain scale and market power over traditional brands. In consumer electronics categories with high online penetration, DNBs are now not just digital leaders but also market leaders.

The report further deep dives into two categories with high online penetration – television and wearables. In the case of wearables, the category has been driven by and is dominated by online-only brands. Wearables + hearables today are as big a category as television and will be significantly larger in the next four years.

If there were no e-commerce platforms where these products were marketed online, perhaps wearable and hearable penetration would have been a lot lower in the country, the report said.

As online penetration increases in other categories such as fashion and beauty, digital brands in these categories too will emerge stronger and challenge the traditional brands for category market share.

Are traditional brands ready for the fight?

Over the next four years, many traditional brands will have the opportunity to up their online game, or they will be victims of brands with high digital penetration sweeping the online market.

The report says that DNBs have built scale and are now expanding across categories and formats. They have revenue, funding, and a strong brand recall. A lot of tech brands are expanding across categories and are also going offline. For many online brands, offline accounts for 10-35% of the total sales. With a strong brand presence online, they are impacting traditional brands in the offline market. Roll-up commerce will further build the capabilities and scale of digital brands.

Traditional players, particulalry in FMCG/fashion recognise the opportunity and the challenge, and they have been preparing to compete online. Some of their strategies include acquisitions of digital brands, launching their own digital brands targeting specific customer cohorts, and strengthening D2C capabilities while still pushing ahead with their brands and aiming to get higher shares online.

Traditional brands trail DNBs in driving e-commerce excellence

Redseer analysis of various brands on its ecommerce excellence framework suggests that large players find it difficult to use their traditional brands to compete with DNBs. A key factor is that online sales are still only a small part of their large organisation. This leads to lower agility in terms of product, pricing and marketing than is required to compete online. Moreover, these brands are often broad-based and not aligned to the needs of Gen-Z and millennials, the largest online segment.

It says that DNBs are lean marketing organisations focused on building/marketing digital brands to new age consumers. They have high agility around product, pricing and customer experience and a greater propensity to experiment and take risks. 

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