Flipkart-Walmart deal: What does it mean for Indian consumers and market?

walmart-flipkart deal [File] Representative image

US retail giant Walmart acquired about 77 per cent of stakehold in Flipkart on Wednesday. The $16 billion deal is the largest buyout in the history of Walmart.

So what does the Flipkart deal mean for Walmart?

Walmart has been trying to set its foot in the large Indian market for the past 15 years. But due to restrictions on foreign direct investment in multi-brand retail, the retail giant was never able to setup its base in the brick-and-mortar retail segment. The company first entered the Indian market through a joint venture with Bharti Enterprises in early 2007 but joint venture failed to take off and subsequently broke apart four years later. This was way before Amazon entered the Indian e-retail market and the control given to the foreign retail was limited to operating ‘cash-and-carry' businesses under the brand name, Best Price Modern Wholesale. Walmart currently operates 21 Best Price Modern Wholesale stores across the country.

The Flipkart deal, however, ensures a full-scale entry of Walmart into Asia’s third largest market, at a large price. The $16 billion deal has left the market shares of Walmart fall by a straight 3 per cent. The company has warned its shareholders that the purchase will reduce its net income by $750 million this year and a double the next year. Even with a short-term fall, the Flipkart deal brings Walmart head-on-head with its arch rival, Amazon, which currently owns 27 per cent of India’s e-commerce market. India remains a major market for Walmart due to its sheer size. According to Morgan Stanley, Indian e-commerce market is projected to be worth $200 billion a year in the one decade

What does it mean for Flipkart?

The sale of 77 per cent stake technically means the US giant gets controlling share in the home grown, Flipkart. The deal also involves the complete sale of Flipkart co-founder Sachin Bansal’s 5.5 per cent stake in the company. Besides Sachin Bansal, the deal may lead to the exit of other major stakeholders like Softbank and Naspers. Softbank is yet to take a call on exiting Flipkart. However, co-founder Binny Bansal, Tencent Holdings, Tiger Global and Microsoft will continue to hold their stakes in the company.

Flipkart is currently the market leader in e-commerce in the country with a share of 42 per cent of India’s e-commerce market. It had pioneered in facilities such as cash-on-delivery. However, the entrance of Amazon in 2013, offering faster delivery options, lower prices and additional features such as prime streaming, backed by investment from the parent company proved to be a major blow to the Indian company. Since then the company has pushed for investment including a merger with eBay in August 2017 and a similar, yet unsuccessful attempted to merge with Snapdeal in the same year.

What does it mean for Amazon?

One of the key stakeholders to be affected by the deal is rival Amazon India which was outbid by Walmart. Amazon entered the Indian e-commerce market five years back and the entrance of Walmart in the Indian market would mean an extension of the Amazon-Walmart rivalry from other major markets including the United States. Amazon, the market leader in the US, holds nearly 44 per cent followed by eBay with 6.8 per cent share and Walmart, along with Apple holds a market share of 3.6 per cent each.

What it means for other businesses?

Walmart has a strong reputation for absorbing smaller businesses through extremely low pricing and mergers. Starting with the acquisition of jet.com in August 2016, what many experts consider as an acquisition spree, the retail giant acquired e-commerce platform Shoebuy in January 2017, outdoor apparel retailer Moosejaw in February 2017, womenswear site Modcloth in March 2017, direct-to-consumer premium menswear brand Bonobos in June 2017 and last-mile delivery start-up Parcel in September 2017.

Besides acquisitions, in India, the retailer could use predatory pricing to set extremely low prices. More than 3,500 sellers on e-tail platforms of Flipkart and Amazon will be left on the edge once Walmart introduces its own private labels via Flipkart.

What does it mean for the consumers?

More options! This would mean wider product choices for the customers who would now have access to the retailer’s indigenous products available in the international market. The Indian e-commerce experienced its first such expansion when Amazon introduced its products to a market that was practically limited to Flipkart, eBay and Snapdeal. While Flipkart carried out the first revolution in India’s e-commerce and Amazon came up with the second one – though a minor one – with massive expansion and competition. Now with the entry of Walmart the competition is all set to tighten along with that more customer sovereignty!

Apart from the larger product base, the acquisition is expected to make significant impact on prices in the segment. Unlike what would usually be the case of mergers where price competitiveness falls, this merger is more likely to lead towards a price war! When Walmart face-off with Amazon in the Indian market, the former is most likely to wield-out its best advantage – low prices. Indian customers are very familiar to what price wars can bring about after the revolution that Jio brought in Indian telecommunication sector. The price warn triggered by the new entrant, Jio, gave India one of the most affordable mobile data in the world. The Walmart-Amazon competition may not bring such a strong impact, but it sure is to make e-commerce more pocket-friendly for Indians!