The segment has been growing in India, with revenues surging from around Rs 1,500 crore in 2007-08 to an estimated Rs 13,900 crore in 2012-13, or a annual growth rate of 56 per cent, Crisil Research said in a report.
Yet the sector still remains a nascent portion of the overall e-commerce segment in the country where the travel business dominates with about two-thirds share, it said.
However, it said, the scenerio is changing fast to pose a threat to brick-and-mortar retailers, not just of books, music and electronics, but also apparel and grocery.
"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. But as a proportion of overall retail, including the massive unorganised segment, it will be just over 1 per cent at the end of that year," said Rahul Prithiani, Director (Industry Research), Crisil Research.
Yet, he said, 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 per cent.
Further it pointed out that 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, it added.
What is also working for online retailers is the growing satisfaction with the transaction experience, 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.
"Like, Wal-Mart allows customers to shop online and opt for either home delivery or store pickup to tackle the queue problem at its stores. Today, Wal-Mart is among the top online retailers in the US."