Do not underestimate Walmart: Indian Flipkart deal will transform e-commerce and create jobs
Walmart has finally acquired major stakes in Flipkart in what is being hailed as the world's biggest e-commerce deal, valued around $18-20bn.
An official statement by Walmart said that the investment will help accelerate Flipkart's customer-focused mission to transform commerce in India through technology, and underscores Walmart’s commitment to sustained job creation and investment in India.
Walmart has been attempting to enter the Indian retail market for more than 15 years but the government’s regulation of not allowing Foreign Direct Investment (FDI) into multi-brand retail proved as a hindrance for the US retail giant.
Walmart still tried to enter India via a wholesale model, with Bharti Enterprises in India, but terminated the deal after a $151m loss. Therefore investment in Flipkart has presented the best opportunity yet for Walmart in India.
Forrester’s Satish Meena, senior forecast analyst said the deal was about more than just cash but ties into offline opportunity and new categories.
“For Flipkart, this deal is more than just money. If they are looking to raise more funds they already have Softbank as a backer. However, to remain the number one player in India (Amazon coming a close second after just four years in India), they are looking to expand beyond smartphones and fashion."
"This deal with Walmart can provide Flipkart the expertise of running offline stores, access to sellers and manufacturers, supply chain and the know-how to get into the grocery segment. Amazon has been selling grocery in India for the past one year, while Flipkart has not rolled out this category. With Amazon closing the gap in categories other than fashion, Flipkart needs Walmart to remain competitive in the long term.”
According to Forrester Data, the Indian online retail market is around $20 billion in 2017 (2.4% of total retail market in India), which is still relatively small when compared to the penetration rates of other mature markets. The upside is big for both Amazon and Flipkart in the next two decades, as no other market except China and US can compete in terms of total retail opportunity. Forrester expects the online retail market in India to reach $73 bn by 2022 from $20 bn in 2017.
In the wake of the news of the deal, Flipkart's rival in India Amazon has pumped in fresh capital of Rs 2,600 crore into its India business unit, Amazon Seller Services, to beef up its war-chest. Earlier, Amazon too initiated a formal bid to acquire a 60% stake in the Indian e-commerce platform. However, Walmart will try to keep Amazon off Flipkart by partnering with Google's parent company Alphabet.
As part of the deal, Alphabet might pick up minority stakes in Flipkart by investing $1-2bn after the Walmart acquisition, according to Economic Times.
According to Mudit Jaju, global head of e-commerce at media, content and technology agency, Wavemaker, the focus on Amazon has been a distraction and traditional retailers, like Walmart, cannot be ignored.
"If there’s one thing we can learn from the recent Flipkart saga, it’s this: never count out Walmart. It’s easy to get wrapped up in the excitement of Amazon being the most exciting, and now largest, company ever; but Walmart’s operational excellence and deep war chest are nothing to sneeze at. There was little doubt that this was a hail Mary pass for Walmart in India – it needed to find a growth engine and tapping into the world’s fastest growing middle class is as good as it gets.
“This may seem like a one-off acquisition in a faraway land, but Indian e-commerce is without a doubt going to be a focus for Walmart. With the integration of Jet in the US well under way, Walmart has gotten better at rolling out new changes and incorporating these lessons into the core business. Case in point: the newly redesigned, and very smart, Walmart.com. The sale of ASDA in the UK also meant that Walmart needed to identify a new growth avenue – and long frustrated by the byzantine laws governing foreign investment in Indian retail, growing via bricks and mortar retail would have been too complex and slow.”
In terms of marketing after the deal, Ethan Chernofsky of market intelligence company SimilarWeb believes that the brand value is the key part of the deal and Walmart’s entry into the market could give Flipkart a boost in their non-branded search strategy. In key markets like the US, Walmart has show a particular capacity for maximizing this channel.
Flipkart previously completed a merger with eBay, despite the snapping of a Snapdeal merger. Flipkart's current leadership team, apart from Walmart, will be supported by Tencent, Tiger Global and Microsoft. Japan's SoftBank has exited Flipkart after investing around $2.5 bn last year in a bid to support innovation and leverage technology.
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