World’s biggest retailer company Walmart just acquired the majority stakes in India’s leading online retailer, Flipkart. Walmart agreed to pay $16-billion for a 77-percent stake in Flipkart. It is Walmart’s biggest deal ever. The country’s e-commerce market is expected to experience explosive growth in the coming decades, so any retailer should see it as a covetable prize.
After struggling for almost a decade in India, this is the best shot they had. The regulatory environment has made it difficult for Walmart and other international retailers to make inroads. Cultural differences between US market and Indian market was also a factor which Walmart was not able to understand. Moms-pops stores are the one who serves the mass population of India. So it was pretty difficult for Walmart and any other retailer to beat that.
Walmart is very strong in physical retail but has failed miserably in online commerce, an area where Amazon is miles ahead. Amazon is almost unbeatable in US e-commerce. They are king, queen, and prince there. With more than 400 stores in China and a partnership with online site JD.com, Walmart is “well-penetrated” in China. This leaves India for Walmart and this deal gives them a head start. Walmart is not going to win its battle with Amazon by taking baby steps or simply imitating Amazon’s playbook. It needs to act early and it needs to be aggressive – and buying Flipkart is just such a move. If you are the world’s largest company (by revenues), how can you not have a presence in India? So, from a strategic point of view, this deal makes a lot of sense. Growth in the Indian retail market and Flipkart’s ability to ride the India consumer wave, it is clear, are what Walmart is betting on in this deal.
India is a jewel of a market where Walmart has been eager to get in. Fastest growing economy, a growing middle class who values education and is increasingly mobile. In US Walmart only grows 2-3% a year but in India, it can grow at 10-15%, something not many countries in the world can offer. If all works well over time, Walmart/Flipkart will be a hugely important company in India. The turning point came when Prime Minister Narendra Modi met Walmart CEO Doug McMillon in the US. The PM asked McMillon to invest in India’s farm sector. That changed the mood, and India was back on Bentonville’s strategy board. Walmart’s India unit hired BCG as an adviser.
Flipkart has an established track record of success. Today, the company has around 30,000 employees, $7.5 billion annual GMV, 54 million active consumers and an annual turnover of $2.3 billion. In its latest fiscal year, it recorded $7.5-billion in gross merchandise volume, which represented growth of more than 50 percent over the previous year. So far they maintain the lead over Amazon India. By joining forces with Walmart, perhaps Flipkart can build on that lead.
This deal will be helpful for Walmart and Flipkart both. Flipkart has 100 million registered users and records more than eight million monthly shipments across Tier-I, Tier-II and Tier-III cities and towns and even rural India. Flipkart is dominating in many segments in India. In Fashion, Electronics they are market leaders and way ahead of Amazon. Ekart’s reach in India is astonishing. Phone Pe is very successful as an individual. So, $16 billion isn’t too high to have a strong presence in a market that’s expected to reach $1.3 trillion in size in the next five years; this will also make India among the world’s five largest retail markets.
In India, Walmart has an opportunity to do what they’ve always been good at, which is bringing commodities at a reasonable price to the mass market. Walmart is a relentless innovator. In retail, Walmart has changed everything, like the way products are packaged and displayed, the way data about sales is analyzed (Walmart analyses sales for every product category in the US every single hour), the way its warehouses run, the way trucking systems operate. Walmart never stops asking questions like, “Are we selling the right thing, in the right place in the store, in the right package?” The innovation all goes to keeping prices low. And now they have the huge database of Flipkart to understand the notion of the Indian market.
Flipkart and Walmart offer each other a fascinating and valuable partnership. Flipkart needs expertise in selling a whole range of merchandise—how do you sell groceries online? Walmart has got money. So, Flipkart won’t have to go looking for investors anymore. Flipkart offers Walmart the online merchandising skill, which Walmart needs badly. Also, it offers an understanding of Indian consumers, in a way Walmart really understands: through data. Most importantly, this is Walmart’s chance to become a “store” for Indian consumers.
As a consumer, it’s important to remember that the low price isn’t always the best thing. Quality is as important as price, so you need to shop with awareness. Walmart will do what’s in its interest. Taking care of Indian consumers, workers will be the job of the Indian officials. Walmart follows the rules, but Walmart will always push to get the best deal…for itself.