Is Walmart’s acquisition of Indian e-commerce leader Flipkart due to threats or opportunities?

By Lester Wan contact

- Last updated on GMT

Walmart said it expects e-commerce in India to grow at four times the rate of overall retail.
Walmart said it expects e-commerce in India to grow at four times the rate of overall retail.
Walmart Inc recently announced it has signed “definitive agreements” to purchase a controlling stake in Flipkart, but was it due to the threat of Amazon dominating the market or the opportunities that India’s largest online retailer brings that sealed the world’s biggest e-commerce deal?

On May 9, Walmart said it agreed to pay US$16bn for an initial amount of about 77% of shares in Flipkart. In doing so, Walmart entered the e-commerce ring to compete with Amazon.

Walmart India currently mainly competes in offline store retail. It operates 21 Best Price cash-and-carry stores and one fulfilment centre across 19 cities in nine states.

Nicolás Avila, vice-president of technology of digital consultancy Globant, said, “The overall experience of Walmart in the US relies a lot in their physical retail presence. Merging this experience with a pure digital player like Flipkart will be challenging but very important to cement Walmart's ability to land in more regions in the future.”

Walmart said it expects e-commerce in India to grow at four times the rate of overall retail.

Dan Neiweem, co-founder and principal of Avionos, a digital solutions firm, said Walmart is looking to grow its online channel by buying into the early stages of e-commerce in India.

“With a country of 1.3 billion, e-commerce is just now scratching the surface,”​ he said.

He said the e-commerce market in India was highly competitive and Walmart knew it had to act quickly or risk playing second-fiddle to Amazon.

“Amazon already has a substantial foothold in India at 27% market share, and Walmart knew they needed to get into that market either by acquiring Flipkart or taking market share away,” ​said Neiweem.

For business reasons?

According to Walmart, with the retail landscape rapidly changing, the company is actively looking for new ways to serve customers.

Judith McKenna, president and CEO of Walmart International, said, “Over the last 10 years, Flipkart has become a market leader by focusing on customer service, technology, supply chain and a broad assortment of products.

“With Flipkart and the other shareholders who have come together, we will continue to advance the winning e-commerce ecosystem in India.”

Currently, the remainder of the business will be held by some of the existing shareholders, including co-founder Binny Bansal, Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp.

Walmart’s president and CEO Doug McMillon said: “India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market.”

Keeping Amazon threat in check

However, as recent as less than a week before the announcement, Amazon had also expressed interest in investing in Flipkart. CNBC reported that Amazon made a formal offer to buy a 60% stake in Flipkart, proposing to merge the two e-commerce giants.

To stave off competition from Flipkart, Amazon had invested a further Rs 2,900 crore in its India operations in November, making it a total of US$2.6bn in the current fiscal year.

That month, the company announced it had more than doubled its business in India in FY17, with over 105% growth in revenues.

The investment was part of Amazon founder Jeff Bezos’ stated commitment of about US$5bn to the Indian market.

“Amazon has committed $5.5 billion to India, so it was only a matter of time before they took over as the leader. If Walmart didn’t make this move now, they would be likely spend way more to get into the market,"​ said Neiweem at Avionos. “By acquiring, Flipkart, Walmart has become the leader in e-commerce in India.”

With over 80 million products across over 80 categories, Flipkart sells a wide range of consumer goods including electrical appliances, mobile devices, household items and food products.

In the financial year ending March 31, Flipkart reported net sales of US$4.6bn, more than 50% year-on-year growth.

The day after the announcement, Walmart India’s president and CEO Krish Iyer said the company also plans to open 50 more stores in India, within the next four to five years.

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