January 11, 2013, 10:47 AM

India’s online retail market could double in size

Within five years annual online sales could top $15 billion.

Lead Photo

Avnish Bajaj, co-founder and director of Matrix Partners India, an e-commerce venture capital firm.

Compared to the more mature and far bigger online retail markets in the U.S. and Europe, India’s e-commerce sales are relatively small. They are estimated at about $1.6 billion by market research firms such as Forrester Research Inc. and some Indian e-commerce venture capital firms.

But the Indian direct-to-consumer e-commerce market is likely to double in size to more than $3 billion within three years, and could grow to reach $15 billion by 2017, says Avnish Bajaj, co-founder and director of Matrix Partners India, one of India’s most established e-commerce venture capital firms.

Speaking to Internet Retailer at the eTailing India Expo e-commerce conference in Mumbai this week, Bajaj says India’s online customer base of around 20 million shoppers could increase as much as 1400% and reach 300 million shoppers within 10 years. “It’s an exciting time to be in e-commerce in India, because even though the market has been developing since 2000 it’s still very early on in the development stage,” he says.

As a developing economy and early-stage e-commerce market, India faces several development hurdles, Bajaj says. Retailing in India is fragmented and dominated by tens of thousands of mostly small proprietors.

Secure payments processing remains a challenge, order fulfillment and package delivery to 60% of the Indian population that lives outside of major cities such as Mumbai and New Delhi is problematic, and India has a very low percentage of consumers with a credit or debit card compared with other countries such as the U.S. and Europe. On the plus side, the number of Indian consumers with a smartphone connected to the mobile Internet could approach 220 million within the next 10 years, Bajaj says.

“There are infrastructure problems, but as the e-commerce market develops and matures, companies will begin to make serious investments,” Bajaj says.

Today the Indian online retailing market has thousands of individual e-commerce sites and only about 80 well-known online retail companies such as Flipkart.com, a six-year old web-only mass merchant with annual sales of about $100 million.

Catering to Indian consumers that connect to the web via mobile phones will be key to e-commerce success in India, Bajaj says. “Over time India’s base of 80 million consumers with a personal computer connection to the Internet will be superseded by 220 million consumers with a smartphone,” he says.

India’s emerging base of online shoppers will be consumers age 25 and under with web-enabled smartphones who are active users of social media. “India has one of biggest bases of Facebook Fans in the world,” Bajaj says. There are 62.7 million Facebook users in India, representing 68% of the country’s online population, according to SocialBakers, which tracks activity on social networks.

In addition, the online shopper base in India will be increasingly females who will shop with increasing frequency online, Bajaj says. “Today the average consumer in India who shops online may do two or three transactions per month,” he says. “In just a couple years as the market grows and matures, the average online shopper could be doing more like four to five transactions per month.”

Bajaj is a Harvard business school graduate and former investment banker at Goldman Sachs. Before becoming an Indian venture capitalist, he also was the founder and CEO of Baazee, an online marketplace that was acquired by eBay for $55 million in 2004.

During a keynote speech at eTailing India Expo, Bajaj told attendees that venture capital funding of Indian e-commerce companies, especially smaller start-ups, is improving. “The good news is that India now has 15 or so seed funds to invest in smaller start-ups,” Bajaj says. “It’s a good time to be bullish on e-commerce in India.”

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