The Indian online retail market is still nascent, yet it is growing rapidly. Despite all of the existing challenges — underdeveloped logistics and supply chain operations, poor last-mile connectivity, delivery rejections at the doorstep when cash-on-delivery payments are used, and low conversion rates — online retail in India grew by 67% in 2013. Forrester expects India’s online retail spending to grow at a compound annual growth rate (CAGR) of more than 50% over the next five years as more Indian consumers start purchasing online. Our recently published report India Online Retail Forecast, 2013 To 2018 discusses our online retail forecast and the growth drivers for India.

On the demand side, Forrester sees a lot of room for growth in the number of Indian online buyers.

  • India had a total population of 1.28 billion in 2013, nearly 16% (or one in six) of whom are online. While higher PC penetration rates have driven Internet adoption in the developed economies over the past two decades, faster mobile penetration is helping boost the Indian Internet population, thanks to “mobile-only” Internet users.
  • Of all Indian online users, just 14% currently purchase online. Forrester expects the online buyer population in India to grow to 128 million by 2018. 

On the supply side, Forrester sees a big opportunity for online retailers.

  • India’s overall retail industry is estimated to be worth more than US$0.5 trillion. Of that, 92% is estimated to be “unorganized retail” — i.e., small, family-run shops. The organized retail segment (which comprises supermarkets, hypermarkets, specialty stores, and large retail chains) accounts for the rest of the market and is mostly present in tier one cities. The relative under-penetration of the organized retail segment in tier two and tier three cities represents an opportunity for online retailers because retailers in the so-called unorganized retail sector do not have the same product selection as their large chain counterparts.
  • India’s eCommerce market will continue to witness strong growth over the next five years due to an underserved consumer base and an extremely ambitious supply side. We expect India’s online retail spending to reach $16 billion by 2018, an eightfold increase from 2013.
  • Mobile Internet access will be a catalyst for the growth of online retail in India. Several Indian online retailers have reported a large increase in their mobile traffic in 2013, which was virtually nonexistent two years ago; in 2013, almost 20% to 30% of the Indian online retailers web site visits came through mobile. Additionally, mobile commerce accounted for 10% to 15% of online retailer transactions.

Forrester recommends that Indian online retailers continue to build consumer trust and invest for the long term. As the online tenure of Indian consumers increases, they will become more confident with online buying. As the government invests more in education and telecommunications infrastructure, PC penetration and broadband penetration will increase. These things won’t change overnight — the companies that end up succeeding in India will be the ones that have invested in the country with a long-term approach and budget.