As already known, Walmart closed a $16 billion deal with Flipkart last month with which the world’s largest retailer got 77% stake in India’s largest e-commerce company, Flipkart. Walmart believes that this deal will help them with increasing their production through global sourcing from the country. Judith McKenna, the International Chief Executive Officer (CEO) of Walmart said in an interview with CNBC TV18 that the company foresees a great opportunity for sourcing its warehouse with accessories and apparel from India to Walmart.
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He also said that Walmart has been cooperating well with the regulatory agencies of India and they are sure that their deal with Flipkart will be passed. The current status of the deal, as shared by Judith McKenna, is that just the approval of Competition Commission of India (CCI) is left for the company to begin its operations in the area. Once they get this approval for Flipkart transaction, they can start with the sourcing of apparel and accessories from the country. This deal of $16 billion by buying 77% of the stakes of Flipkart will be the biggest foreign investment direct deal for India so far. The Flipkart transaction for Walmart fully complies with the rules of the Indian market and has been applied to CCI for the clearance of the transaction.
Doug McMillon, President and CEO of Walmart, says that they find the retail market of India as the most attractive one in the world. The size of the Indian market and the rate with which it is growing makes their investment an opportunity to grow with Flipkart by the help of their partnership. According to McMillon, Flipkart is a demonstration of the biggest transformation of e-commerce in the Indian market.
Analysts are classifying this deal as Walmart’s tool against the rising competition of their competitor Amazon who is a worldwide online retail giant and is spreading its arms in the offline retail section as well. Based on the analysis by a valuation guru, Aswath Damodaran, the reason for this $16 billion investment from Walmart into Flipkart is not based on the returns of this investment; instead, it is based on the sudden results that would come up if the deal was declined. This would give a chance to Jeff Bezos’s Amazon to profit from the denial of Walmart’s acquisition with Flipkart. However, when McKenna was questioned about this justification related to Amazon he said that they are quite used to their competition around the world so this deal is not based on any particular competition, but for the expansion of the company.
After this acquisition, both the companies will run their own distinct brands as well as separate operating structures, as reported by Walmart. Flipkart and Walmart will use each other’s strengths to their own maximum advantages. Krish Iyer, the Chief executive of Walmart India, stated that the company owns 21 cash-and-carry stores with best prices and one fulfilment center. These stores are spread across 19 cities in nine states. Around 95 percent of the sourcing for these stores and centers is from India. With this, they are helping suppliers from the country and is expecting double-digit growth here. This way, the company’s Indian branch is contributing to the local economies and is creating skilled jobs for the country. He further made a statement that they have the support of around 1 million Kirana members with respect to their deal with Flipkart.
McKenna believes that there is a wide scope of growth for the Indian e-commerce market as it is still not completely explored. He also says that they can also look into increasing the funding for Flipkart as and where it would be necessary. The company will also invest in cold storage along with the cash-and-carry stores. Flipkart has built a very strong business online along with which it also has strong ties with more than 1,00,000 sellers. This would strongly help Walmart in expanding its global market.
While there is a slowdown in the other parts of the world, India has established a booming online market. This deal with Walmart will also help Flipkart in certain categories like white goods and apparels. They will continue to invest in areas like their supply chain, AI, expansion of their collection, machine learning and coming up with new ways to slash down prices. Walmart gains a front-row seat in the Indian online retail market with this deal. Walmart will still have to run Flipkart as an independent company as the rules of Indian retail market do not allow foreign multi-brand retailers to set up retail stores. They will also be not allowed to use each other’s physical infrastructure. They will, however, be allowed some of their private labels to each other’s customer network.
Walmart can certainly help Flipkart with the retail expertise that it has which will help Flipkart to deal with its shortcomings in the areas of efficiency and will also help in rationalizing operational costs. This is not a good news for the smaller retailers in the Indian e-commerce market but it is a giant step for both the companies involved in the acquisition. It would require them a lot of capital to fight against giants like Amazon and Walmart. They might not be able to make a mark in wider areas but the growth will be more if they focused on specialized areas. For example, Nykaa, which was launched in 2012, has already gained a value of 3000 crores in the Indian market. Customers are more willing to go to local sellers for niche areas and that would be the way for local sellers to grow in the market instead of aiming to compete with these global giants. Another alternative is to go into areas which are not yet covered by Flipkart, Walmart or Amazon and ensuring good quality products along with on-time delivery of the products will help them leave a mark in the industry.
