The deal between Flipkart and Walmart is set to carve a new future and fortune for the e-commerce industry in India. As per the deal, Walmart will invest $16 billion for a 77 per cent initial stake, with the rest of the business being held by Flipkart co-founder Binny Bansal, Tencent, Tiger Global, and Microsoft. This mega deal reflects Walmart’s focused global strategy, to drive returns from its reliable scale at home, while finding sustainable growth outside home turf.
India’s retail industry is set to witness a new high post this deal. While e-commerce is still at its infancy, having a local partner to help navigate is clearly important and that’s where Flipkart’s role lies. As per recent reports, by 2020, 358 million Indians will be shopping online, making up 36 per cent of the total population. Modern trade, as opposed to independent traders, still has a relatively lower share of 10 per cent in the whole of retail gamut.
Experts say winning in India requires commitment, local knowledge and deep pockets. And Walmart’s latetst move would certainly disturb arch rival Amazon, who has been on top of the game till now. While being a strong contender to overtake Flipkart, Amazon will find it tough to win the two forces: one is a global giant and the other knows the pulse of domestic customers well. However, Amazon, is currently the leader in web traffic, winning in higher frequency categories and gaining a lot of momentum with the expansion of its Prime membership.
Birth of a ‘glocal’ company
The takeover is a classic example of ‘glocal’ wherein Walmart would bring in global expertise and Flipkart would ride its domestic skillsets. As the Indian economy is still highly cash-centric, with around 68 per cent transactions made in cash, Walmart can bring in its expertise in online grocery as e-commerce in India grows. Also, it brings with it invaluable knowledge of India’s supply chain through years of running cash and carry operations, as well as global expertise in grocery e-commerce. Walmart is likely to bring learnings from China to the Indian marketplace, especially in how ecommerce giants in China are modernising traditional retail such as Alibaba’s comparatively modest plan to convert 10,000 mom-and-pop shops to a Tmall-branded network of outlets.
Applying this approach to India, Walmart could create superior logistical capabilities and begin modernising retail in the country at an accelerated pace. This formula has already been tried by Amazon as it has approached small convenience stores and embraced the online and offline blend in India, appointing offline partners across Kirana stores, training store owners to help customers buy on Amazon, empowering local sellers to offer online access to the residents. Because of such a thrust at the grassroot level, around 75 per cent of new Amazon customers come from tier III cities and smaller towns.
Strategies going ahead
In a statement, Doug McMillon, President & CEO, Walmart, said the company’s investment is an opportunity to partner with the company that is leading the transformation of e-commerce in the market. “As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market. We are confident this group will provide Flipkart with an enhanced strategic and competitive advantage. Our investment will benefit India, providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs,” he added.
Bansal, co-founder and group CEO, Flipkart, added the investment “is of immense importance” for India and will help fuel ambition to deepen the connection with buyers and sellers and “to create the next wave of retail in India”.
Raunak Mehta, Head-E-commerce Strategy and Cconsulting, Publicis Media Asia Pacific, feels the deal, along with various other deals such as the ones between Alibaba and Lazada, asserts the importance Asia is playing in the world of e-commerce. Walmart had been on an acquisition spree since mid-2016, and acquiring a majority stake in Flipkart would rank among its top deals. It will give an international extension to the US-centric retail war between Amazon and Walmart. While it gives a direct-to-consumer platform to Walmart, it brings with itself more than 100 million active users, 100,000 sellers and a logistics arm that has the capability to deliver to any part of India. Flipkart, will be an immense focus on extracting more from retail operations with Walmart on-board. Walmart is known for its unflinching approach towards driving efficiency which would enable Flipkart to streamline operations and bring about an improvement in margins.
This deal has offered Walmart access to key growth levers in the rapidly evolving Indian retail marketplace as Flipkart owns valuable assets to sustain long-term growth, not only in the form of its marketplace platform but also with its massive dedicated fashion business (Myntra and Jabong), a logistics business (eKart), and a payments business (PhonePe). All these factors are strong key levers for any company to succeed in this growing e-commerce space and transform the retail landscape in India.