Big billion deal

With the acquisition of Flipkart, Walmart is set for a showdown with Amazon in India


Carl Douglas McMillon had a stellar tenure as the head of Walmart’s international division from 2009 to 2013. Under him, Walmart International grew faster than Walmart US—it doubled the number of overseas stores and spread operations to 12 more countries in four years. The company’s board did not need a second look when it wanted a new chief executive in 2014. It was a difficult time for Walmart, with slow growth and tough competition. But McMillon knew what to do. He made a commitment to e-commerce, announcing huge investments in online operations.

The future of retailing is omnichannel—a player needs a strong online presence and a complementing offline presence.

It seems McMillon is sticking to his plan, but in a different location, as Walmart acquired 77 per cent in the Indian e-commerce player Flipkart for about $16 billion. “India is one of the most attractive retail markets in the world, given its size and growth,” he said. “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.”

The deal, by all means, is a game-changer. For one, it will have a big impact on India’s e-commerce sector. Despite the huge potential the sector offers, investors had so far not seen real returns. “This deal will be the first mega deal where investors such as Accel Partners and Tiger Capital get a bang for their buck,” said Kris Lakshmikanth, CEO of the recruiting firm The Head Hunters India. “SoftBank, which came late into the game, has had the best deal.” Promoted by the Japanese billionaire Masayoshi Son, SoftBank was the biggest stakeholder in Flipkart before the Walmart takeover.

A bigger beneficiary would be the Indian consumer, as Walmart has a proven record of bringing down prices. “There are studies in the US that show that Walmart has led to a reduction of 0.6 per cent to 1 per cent in cost of living,” said Lakshmikanth. “In India, thanks to Walmart’s clout in bulk buying, the prices of garments and electronics would come down by 5 to 8 per cent. Here, both Amazon and Walmart have to play the price game. With the Paytm Mall promoted by Alibaba joining the fray, Indian consumers will benefit.”

The deal was crucial for Walmart, the world’s largest retailer, which is in a tough battle with Amazon in the US and Europe. “Walmart started its own e-commerce division, but it did not take off,” said Lakshmikanth. “Then it purchased Jet.com and kept it a separate entity. With Jet, it gained some marketshare in the e-commerce space. However, it is far behind Amazon. In China, both Amazon and Walmart have no big business. The remaining large market is India, where they are both going to have a fight to the finish.”

In India, Flipkart has been fending off an Amazon onslaught in the past four years, and that suits Walmart’s plans. “Walmart is building up retail presence in India, albeit slowly when compared with their earlier aggressive intentions,” said Alok Shende of Ascentius Consulting, Mumbai. “However, there is no doubt that combining traditional retail structure with digital presence through Flipkart will allow Walmart to leverage new sources in targeting the Indian market. There are few opportunities to acquire a dominant player in a market like India. Also, Walmart can replicate the learning and experience from India in other markets.”

The future of retailing is omnichannel—a player needs a strong online presence and a complementing offline presence. While many departmental store chains, toy chains and book stores have closed down in the US succumbing to Amazon’s might, Amazon itself has opened stores in select cities. In January, it opened its first cashier-less store in Seattle. It also bought Whole Foods Market, a large chain of food stores.

India’s e-commerce landscape is poised to see major developments in a hyper-competitive environment. “It’s currently estimated that 15 per cent (200 million) Indian consumers will be shopping online by the end of 2018, and the relatively untapped growth potential is attracting the commerce giants,” said Adrian Lee, research director at Gartner. Many experts say that Walmart is going to help Indian consumers with its size, low procurement expenses and excellent logistics management. And, it would help Indian farmers get better returns with faster transportation and longer cold chains.

Walmart had been readying itself for the Flipkart deal—it recently sold its British arm, Asda Group, to rival J Sainsbury for close to $10 billion. “Walmart had been wanting to establish its business in India for the past 15 years, but had been unable to make any impact in the market,” said Amit Chandra, IT analyst at HDFC Securities. “Through the Flipkart deal, it will be able to gain handsome traction in the Indian market.”

And, the shoppers are in for a better deal. “I feel that user choice should be improved, with a greater range of Walmart private labels differentiating the merchandise,” said Lee. “Flipkart will diversify its inventory to attract more Indian consumer segments that still haven’t started shopping online.”