February 24, 2014 www.crisil.

com
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February 24, 2014
Mumbai


Online retailing will triple to Rs 500 billion in 3 years


CRISIL Research, Indias largest independent and integrated research house, estimates that online
retailing -- both direct and through marketplaces* -- 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.

Says Rahul Prithiani, Director Industry Research, 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 dont 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.

Says Prasad Koparkar, Senior Director Industry and Customised Research, 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.


*Marketplace refers to platforms like eBay, where various retailers sell their ware


February 24, 2014 www.crisil.com
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Manasi Apte
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Phone: +91 22 3342 1812
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Jyoti Parmar
Communications and Brand Management
CRISIL Limited
Phone: +91 22 3342 1835
Email: jyoti.parmar@crisil.com

Prasad Koparkar
Senior Director
Industry and Customised Research
CRISIL Research
Phone: +91 22 3342 3137
Email: prasad.koparkar@crisil.com

Rahul Prithiani
Director
Industry Research
CRISIL Research
Phone: +91 22 3342 3574
Email: rahul.prithiani@crisil.com


About CRISIL Limited
CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's
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corporations.

About CRISIL Research
CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis
on the Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and
industry research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis
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