India’s online retail to triple

India’s online retailing – both direct and through marketplaces – will become an Rs500 billion (approximately $10 billion) industry by 2016.

That’s according to research house Crisil who said the country’s online retail will grow at a whopping 50-55 per cent annually over the next three years.

That would be over 30 times its size at the end of fiscal 2008, it says.

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 bricks-and-mortar retailers – not just of books, music and electronics, but also apparel and grocery, Crisil says.

“From around eight per cent share of the organised retail market in India now, online retailing will zoom to around 18 per cent by 2016,” said director Rahul Prithiani of Crisil.

“But as a proportion of overall retail – including the massive unorganised segment – it will be just over one per cent at the end of that year. Yet the potential is huge,” adds Prithiani.

Over the past four to five 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, says Crisil.

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.

“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,” said senior director Prasad Koparkar.


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