Online retailing will triple to Rs 500 billion in 3 years- CRISIL Research

CRISIL Research has estimated that online retailing -- both direct and through market places will become a Rs 500 billion industry by 2016, growing at a whopping 50-55% annually over the next three years.

That would be over 30 times the size at the end of fiscal 2008.

The segment has been growing like gangbusters in India, with revenues surging from around Rs 15 billion in 2007-08 to an estimated Rs 139 billion in 2012-13 - or a compounded annual growth rate of 56%.

Yet it remains a nascent portion of the overall e-commerce segment in India where the travel business dominates with about two-thirds share. But the equation is changing fast enough to pose a threat to brick-and-mortar retailers not just of books, music and electronics, but also apparel and grocery.

Rahul Prithiani, Director, Industry Research, said, From around 8% share of the organised retail market in India now, online retailing will zoom to around 18% by 2016. But as a proportion of overall retail -- including the massive unorganised segment -- it will be just over 1% at the end of that year. Yet the potential is huge. For example, in the US, which is the biggest market for online retail, and the UK, the share of online retail is around 9-10%. Even in a developing market such as China, it is 4-5%. Over the past 4-5 years, competition from online retailers such as Flipkart (in books, music and electronics) and Myntra and Jabong (in apparel) has hurt physical retailers, forcing many to also go online -- even as their net store additions have declined.

Similarly, in the perishables market, e-commerce companies such as BigBasket and Localbanya are posing a strong challenge with their 'call-order-deliver' model.

On the other hand, companies focused on books and music are closing down many stores or even shutting down completely because they are unable to compete with the huge discounts offered by online retailers. Online retailers also play the volume game through shopping festivals several times a year to spur sales, which is difficult for the physical retailer because of realty and inventory costs.

What is also working for online retailers is the growing satisfaction with the transaction experience they afford: customers don't have to physically travel to stores, get a fairly good idea about the products browsing in the comfort of their homes and office, pay on delivery, and also get their money back - no questions asked - in case of dissatisfaction.

Prasad Koparkar, Senior Director, Industry and Customised Research, said Eventually, just the way it happened in the US, physical retailers will have to establish a presence online. And, with the right strategies, they can even compete effectively. For instance, to tackle the queue problem at its stores, Wal-Mart allows customers to shop online and opt for either home delivery or store pickup. Today, Wal-Mart is among the top online retailers in the US. This shows how it can be done.

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