Are Tier 2 & 3 Cities the Future of E-commerce?
Nov 2025
If you really want to understand the future of India’s e-commerce ecosystem, don’t look at the glittering storefronts of Mumbai or the tech corridors of Bengaluru. Instead, step into the thriving bazaars of Indore, the rapidly urbanizing outskirts of Lucknow, or the buzzing shopping districts of Coimbatore. Here, in the heart of India’s Tier 2 and Tier 3 cities, an economic revolution is unfolding, quietly, steadily, and now unmistakably, driven by the growth of e-commerce in Tier 2 and Tier 3 cities and the rising number of non-metro online shoppers in India.
By 2023, smaller cities had already emerged as India’s biggest drivers of online retail demand. According to an analysis published by SARC Associates, Tier 2 and Tier 3 cities contributed around 60% of India’s e-commerce demand in 2023, a shift driven by rising aspirations, increasing digital readiness, and improved access to online services, clear indicators of digital adoption beyond metros and accelerating regional ecommerce growth.
This shift reflects a deeper truth: the next phase of India’s consumption growth will be shaped not by its metros, but by the ambitions and evolving behaviours of its non-metro consumers, whose digital confidence is fueling massive Tier 2 and Tier 3 e-commerce growth.
The Unexpected Front-Runners
During the recent festive season, something remarkable happened that even the biggest brands didn’t fully anticipate. While their campaigns continued to dominate metro billboards and high-intent audiences in Tier 1 cities, the real action was happening in Tier 2 and 3 cities.
E-commerce platforms witnessed a dramatic realignment in where demand truly resides. According to Fynd’s Festive Report 2025, Tier 2 and Tier 3 cities contributed 65% of festive orders, and Tier 3 alone contributed 46%, outperforming metros in both growth and momentum. Another analysis by BW Marketing World noted that these cities drove nearly 58% of all festive e-commerce transactions in the very first week of sale events, a strong sign of online retail expansion in Bharat markets and rising online shopping trends outside metros.
But what makes these numbers more compelling is that they are not mere festive anomalies. While the aforementioned numbers come from the festive period, platforms report that the momentum in Tier 2/3 markets increasingly carries into non-festive months as well. Across categories such as fashion, beauty, home essentials, and electronics, India’s non-metro regions increasingly form the backbone of e-commerce demand. Marketplaces have begun reporting not only higher buyer density in smaller cities but also a widening range of product categories being explored and purchased beyond the metros, reflecting changing buying patterns in non-metro India and consumer behaviour shifts in smaller Indian towns.
This momentum reflects a pivotal reality: Tier 2 and Tier 3 e-commerce growth is no longer peripheral; it is now central to India’s e-commerce engine.
The Mindset Shift: From Curiosity to Confidence
Not too long ago, many shoppers in smaller cities were first-time, cautious users of e-commerce. They leaned on cash-on-delivery, purchased only select categories, and often hesitated when it came to returns or replacements.
Today, that profile has fundamentally changed. A recent consumer research smartphone study by Market Xcel reinforces this shift: among young shoppers in Tier 2 cities, nearly 70% now purchase smartphones online, showing how deeply e-commerce has penetrated smaller markets and how strongly digital-first consumers in semi-urban India have evolved.
This comfort with online buying mirrors the broader national trend, where non-metro India is rapidly becoming home to mobile-first shoppers, value-driven buyers, and young online buyers whose behaviour signals powerful Tier 2 and Tier 3 e-commerce growth.
Bain notes that a large share of India’s newest online shoppers now come from non-metro cities, many of them Tier 2 and Tier 3, and that fashion, long considered a metro-led category, is often their gateway into the online ecosystem. Meanwhile, SARC Associates’ analysis highlights that smaller cities are seeing rapid growth in categories like personal care and electronics, supported by rising smartphone usage and deeper internet penetration, significant indicators of digital readiness in India and surging digital consumption in emerging towns.
These shoppers aren’t dabbling. They’re participating with confidence, and increasingly, with expectations shaped by national and global benchmarks, driving even faster Tier 2 and Tier 3 e-commerce growth.
What Changed? A Perfect Storm of Access, Aspiration, and Infrastructure
1. Aspiration Became Decentralized
Social media is perhaps the most significant equalizer of aspiration in modern India. As short-video platforms and influencer-led content spread beyond metros, consumers in Tier 2/3 cities began discovering brands, trends, and categories at the same moment as their metro counterparts, reshaping digital behaviour patterns across regional markets in India.
Bain’s insights show that many new e-commerce entrants from smaller cities are young, mobile-first, and motivated by digital discovery. With creator-led influence and vernacular content shaping preferences, category adoption in these cities mirrors metro patterns far more closely than ever before, a major contributor to Tier 2 and Tier 3 e-commerce growth.
2. Logistics Finally Caught Up
Aspiration can drive interest, but only access drives consumption. That access widened dramatically as logistics networks expanded.
Bain notes that e-retail now reaches nearly all serviceable pin codes in India. Fynd’s 2025 analysis further underscores the structural shift: store-based fulfilment now matches traditional warehouse dispatch, bringing inventory much closer to end consumers.
Simultaneously, Shipway’s regional analysis shows that RTO rates are significantly higher in Tier 2 and Tier 3 cities due to address-related and behavioural factors. Yet, these higher RTOs are precisely why platforms are aggressively investing in deeper logistics coverage, improved address verification, and more resilient last-mile networks. These actions support rising semi-urban demand and the demand acceleration in smaller Indian regions.
The outcome? Delivery timelines in many non-metro clusters are more dependable than ever, building trust and enabling higher purchase frequency.
3. Digital Payments Removed the Last Barrier
If logistics created access, digital payments created assurance. According to PwC’s payments outlook, a majority of new QR code deployments have occurred in Tier 2 and Tier 3 regions, demonstrating rapid merchant acceptance beyond metros. NPCI-linked data further highlights that a significant proportion of new UPI users now come from these smaller cities.
This matters because digital payments reduce friction. When consumers don’t have to worry about failed COD deliveries or carrying cash, the hesitation barrier fades. As a result, categories expand, ticket sizes grow, and the frequency of transactions increases, reinforcing consumer momentum in India and pushing even more Tier 2 and Tier 3 e-commerce growth.
Together, aspiration, logistics, and payments have brought Tier 2 and Tier 3 India into full digital maturity.
Beyond Buyers: The New Seller Economy
The rise of smaller-city consumers is only one side of the story. The supply side has transformed, too.
Bain’s analysis previously noted that a growing share of new online sellers originates from Tier 2 and smaller towns, enabled by marketplace onboarding, improved courier availability, and the ability to sell nationwide without physical expansion. SARC Associates reinforces this, highlighting that platforms such as Meesho have seen substantial participation from non-metro sellers, many of whom have scaled meaningfully within months.
This democratization of supply is redefining what “local business” means. A boutique in Jaipur can today sell across the country with the same ease as a brand in Delhi. A home-based entrepreneur in Nagpur can compete with established sellers through digital storefronts and social commerce, expanding emerging retail opportunities in regional India and strengthening the market potential of India’s emerging towns.
This rise of small-city sellers is as consequential as the rise of small-city buyers, because it strengthens the ecosystem from both ends and further fuels Tier 2 and Tier 3 e-commerce growth.
Local Nuances Brands Cannot Ignore
Even as demand from smaller cities grows, brands and platforms must recognize that these consumers do not behave like metro clones.
Marketplace data consistently shows:
• Higher reliance on regional influencers and vernacular content
• Greater sensitivity to practicality, value, and durability
• Higher incidence of address-level issues and returns
These nuances reflect evolving regional buyer expectations and trends, the rise of smart shoppers and expanding purchase evolution in India.
For brands, this means success cannot come from simply “expanding to new markets.” It comes from adapting to new consumers in emerging towns in India and aligning with their unique expectations.
Is the Infrastructure Ready? Maybe Not Perfect, But Ready Enough
In India, roadways handle almost 60% of all freight, but weak road and port infrastructure, along with growing urban congestion, significantly slow logistics. These bottlenecks drain billions from the economy each year through wasted fuel and reduced productivity.
India’s e-commerce logistics market is projected to grow at a robust CAGR of 24.44% between 2025 and 2032, expanding from USD 18.55 billion in 2024 to more than USD 106 billion by 2032. This growth mirrors the rapid investments being made to serve India’s emerging consumption centres, its Tier 2 and Tier 3 cities. Yet, infrastructure challenges persist. Several pockets still face inconsistent courier availability, uneven road networks, and higher delivery costs, particularly in regions where density is still developing.
Despite these gaps, the larger picture is overwhelmingly positive. Bain & Company’s How India Shops Online 2022 report notes that India’s e-retail platforms are now accessible across 99% of the country’s PIN codes, highlighting how deeply digital commerce infrastructure has expanded. At the same time, an analysis published by SARC Associates suggests that Tier 2 and Tier 3 cities together contributed roughly 60% of India’s e-commerce demand in 2023, indicating how rapidly consumption in these markets is rising.
Fulfilment models have also evolved. According to Fynd’s Festive Season Report 2025, store-based fulfilment reached 51%, matching warehouse dispatch for the first time and signalling a shift toward placing inventory much closer to customers. Platforms like Amazon, Flipkart, and Meesho are expanding delivery stations and last-mile capacity in smaller cities ahead of the next wave of shoppers, strengthening ecommerce penetration in under-served markets.
The bottom line: India’s non-metro infrastructure may not be flawless, but its reach, adaptability, and investment momentum make it more than ready for the next phase of Tier 2 and Tier 3 e-commerce growth.
Conclusion: The Future Isn’t Urban or Rural. It’s Universal.
The data leaves no room for doubt. India’s online retail revolution has already shifted beyond metros. Demand, discovery, logistics, payments, and even seller ecosystems are now being shaped in towns that many brands once overlooked.
Tier 2 and Tier 3 India is not “the next frontier”; it is the current centre of gravity. And for brands asking where to find sustainable, scalable growth, the answer is clear:
Look to the markets where aspiration is rising fastest, digital comfort is deepening, and consumption is accelerating, look to the new digital heartland of Bharat, and the unstoppable Tier 2 and Tier 3 e-commerce growth shaping the future.
Want deeper insights into how India’s non-metro consumers will shape your category?
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