US-based retail behemoth Walmart, which is close to acquiring domestic e-commerce giant Flipkart, might take the Bengaluru-based etailer to other emerging markets in a bid to fight its arch-rival Amazon globally.
Walmart’s proposed deal to pick up 80 per cent of Flipkart, likely to be announced shortly, values the Indian firm at about $20 billion (₹1,28,000 crore) and gives complete exits to many of its early-stage investors, including New York-based Tiger Global, Naspers, Steadview and DST, according to a Bloomberg report.
However, Flipkart’s largest investor SoftBank, which pumped in about $1.2 billion last year and pushed its valuation to $11 billion, might hold on to its investment.
Wider view
While industry experts view the deal as strong validation of the Indian e-commerce opportunity, sources close to the company said Walmart could use the Flipkart platform to strengthen its presence outside India as well — in emerging markets in South-East Asia, West Asia, Africa and some European markets, where there are no clear leaders yet.
“It will definitely enter smaller developing markets to boost sales,” said a source. “However, in India, it will focus on improving its margins.”
Walmart, which is fighting a global battle with Amazon and Alibaba, is in need of more ammunition.
“If the India operations make sense for the company, Walmart can take Flipkart to some new markets, including a few developed ones, with an omni-channel strategy,” said Anil Kumar, CEO at e-commerce consultancy firm Redseer Consulting.
At present, Walmart operates 11,700 retail units across 28 countries, while Amazon is in 13; Alibaba is dominant in China and parts of South-East Asia.
India plans
In India, Walmart may have to run Flipkart as an independent company, as FDI rules don’t allow foreign multi-brand retailers to set up retail stores.
“Walmart will have to run Flipkart as an independent company in India,” said Arvind Singhal. founder of retail consultancy and advisory firm Technopak.
“Both the companies will not be allowed to use each other’s physical infrastructure, so omni-channel is out of the question in this market. But, yes, Walmart might be able to sell some of its private labels on Flipkart.”
Flipkart, he added, cannot use Walmart’s warehouses or wholesale stores; nor can the American behemoth use the Indian e-tailer’s platform. FDI rules don’t allow them to integrate each other’s logistics and supply chains either.
“Walmart can use its retail expertise to help Flipkart get rid of inefficiencies, rationalise operational costs and turn it around. However, with players like Amazon and Alibaba-backed Paytm, things might be difficult,” said Singhal.
The Reliance challenge
Mukesh Ambani’s Reliance Retail, which can easily pull off omni-channel with its formidable infrastructure, may give tough competition to Walmart in India.
Harish HV, former partner at Grant Thornton, said Walmart is taking strategic bets under the belief that the Indian government will sooner or later ease FDI norms in retail and e-commerce.