How Walmart is piggybacking on Flipkart to outrun Amazon in India
Walmart is in direct talks to acquire an equity stake in Flipkart, the largest ecommerce company of India.
Walmart is likely to consider a strategic deal with Flipkart similar to the one the US retail giant forged with JD.com in China a few months ago. In June this year, Walmart acquired 5 per cent stake in the second largest ecommerce marketplace at $1.5 billion.
However, the extent and price of the proposed acquisition is unclear. It looks like the deal will help Flipkart fight cash-rich Amazon and let Walmart gain, in the bargain, a firm foothold in India’s ecommerce market.
However, spokespersons of both Flipkart and Walmart are tight-lipped over the negotiations and said in perfect synchrony: “As a policy, we don’t comment on rumours and speculations”, giving nothing away about the deal.
This strategic alliance is advantage Flipkart - it will get to lever Walmart’s famed global supply chain to carry out a range of improvements in procurement to product assortment, as well as a technology platform to boost sales vis-à-vis Amazon’s figures of 250 per cent growth and 1.2 lakh sellers in the past year.
The best-price-large-format stores of Walmart, present in some six major towns already, will soon fold into pick-up and delivery points, conceivably to gain a firm foothold into India’s largest ecommerce marketplace and catch a hotspot which would have otherwise taken years to gain.
"Service, price, range and delivery" is the success mantra of Amazon CEO Jeff Bezos, who had planned a $3-billion investment in the India Arm of his company this year as India sales kicked up its overall sales and revenue figures last year.
Amazon has deepened its pockets of investment, wears a festive look and offers great discounts and variety. It is ready to throw the gauntlet for a neck-to-neck fight with Walmart-aided Flipkart, as its leadership position in India is threatened by Walmart’s new business strategy in the country.
Amazon posted a hefty revenue of $99 billion last year while Walmart was way behind with $14 billion. Walmart registered growth of 7 per cent at overall revenue of $149 billion (online sales of $14 billion) against Amazon’s 20 per cent jump in overall revenue of $120.9 billion (online of $99 billion), and is looking ahead for increased online sales.
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| Initially it looks like advantage Walmart-Flipkart, but the game might eventually swing in Amazon’s favour. (Photo credit: India Today) |
On the other hand, Walmart in August acquired Jet.com in the US, a startup becoming popular, whose shares it bought for $3.3 billion - the largest-ever purchase of an ecommerce company in recent times.
Walmart’s expansion got stalled a few years ago, when it got messed up with some issues in Mexico. As a fallout of that, its partnership with Bharti Enterprises broke and drove it to seek refuge in the wholesale business-to-business segment in India.
India’s retail policy does not allow anyone to sell directly to consumers. However, they can inject 100 per cent Foreign Direct Investment (FDI) into the ecommerce market place, a model both Flipkart and Amazon operate under.
The wholesale cash-and-carry business is the only permitted segment in which India allows 100 per cent FDI (in brick-and-mortar and online ventures 100% FDI has been allowed recently).
Initially it looks like advantage Walmart-Flipkart, but the game might eventually swing in Amazon’s favour. That is a much awaited moment in the ecommerce marketplace, to be seen soon.
If all goes well between Walmart and Flipkart, the war of Walmart and Amazon will spill over into India, creating a niche for sure in the fast-growing market for Amazon.