The much-awaited Flipkart-Walmart deal is now official. US retail giant Walmart has picked up 77 percent stake in Flipkart for $16 billion, valuing it at $20 billion. With this move, it becomes the world’s largest retail deal. The Flipkart-Walmart investment also includes $2 billion of new equity funding. While the remaining stake will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder and Group CEO Binny Bansal, Tencent Holdings Limited, Tiger Global Management LLC and Microsoft Corp. The world’s largest eCommerce deal can shake up the eCommerce sector to a great.
The Story Behind the Flipkart-Walmart Deal
Walmart tried to enter India in 2009 via a joint venture with Bharti Enterprises. In 2013, Walmart bought Bharti Enterprise’s share from the Joint-Venture and operated as Best Price cash-and-carry stores. Currently, Walmart India owns 21 stores and one fulfilment centre in 19 cities across nine states in India.
Walmart has also engaged itself in a fierce battle with Amazon in the USA. In the US, people are continuously shifting to online shopping. India is one of the world’s largest and fastest growing markets. To stop Amazon’s global dominance, this time Walmart has chosen Flipkart to enter the Indian market. The Flipkart-Walmart Deal will give access to the market it has been trying to get through. The deal would give the world’s largest retailer a significant foothold in the in a country with more than 1.3 billion people, strong GDP growth, a growing middle class and significant runway for smartphone, internet and eCommerce penetration. The Indian eCommerce sector is expected to grow 4 times faster than total retail through 2023.
“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of eCommerce in the market,” said Doug McMillon, Walmart’s president and chief executive officer.
“While Walmart and Flipkart will leverage the combined strengths of both companies, they will maintain distinct brands and operating structures,” both the companies said in a joint statement.
Flipkart co-founder Sachin Bansal exits
India’s most valued internet firm and largest eCommerce player, Flipkart was founded in 2007 by former Amazon employees, Binny Bansal and Sachin Bansal (not related). Post sell out to World’s largest retailer, the former CEO of Flipkart will step down by selling his 5.5 percent stake to Walmart. Sachin was the CEO of Flipkart for 9 years.
eBay India to relaunch
eBay India has announced its plan to sell its stake in Flipkart. The statement came after the announcement of Walmart’s deal. Flipkart acquired eBay India in April 2017. For an equity stake in Flipkart, eBay made an investment of $500 million.
“We plan to relaunch eBay India with a differentiated offer to focus initially on the cross-border trade opportunity, which we believe is significant. We believe there is huge growth potential for e-commerce in India and significant opportunity for multiple players to succeed in India’s diverse, domestic market,” the company said in a statement.
The battle against Amazon
There were several media reports that Amazon had offered to 60% stake in Flipkart with $2 billion break-up fee. Flipkart is presently India’s largest eCommerce player. Both Amazon and Flipkart have around 70 to 80 percent of the total market share.
Flipkart was slightly ahead of Amazon in GMV market share for 2017. The Flipkart-Walmart deal will fortify Flipkart against Amazon’s $5 billion investment in India. Walmart’s entry into Indian eCommerce will take the Flipkart-Amazon rivalry to the next level. The battle for leadership will become more intense. Flipkart will also enjoy Walmart’s expertise in retailing, logistics and supply chain management. Currently, Flipkart’s logistics arm – Ekart Logistics delivers about 5 lakhs (500K) shipments per day.
Amazon would have succeeded in dethroning Flipkart in the long run. But with Walmart’s entry, the equations have changed. Walmart chose online retail at a time when Amazon has embraced offline retail by picking up 5 percent stake in Shoppers Stop last year for $27.6 million.
The deal will help better management of retail operations and supply management. With Walmart bringing in efficiency in Flipkart’s operations, its rivals – Amazon, Future Group and Reliance Retail would leave no stones unturned to respond to it. Customers can have access to more variety of products at lower prices and can enjoy faster deliveries.
Small Vendors worried
Small Vendors are worried because Walmart can start selling its private labels via Flipkart at ultra-low prices to wipe-out competition. They won’t be able to survive under such circumstances. Many trade organisations have highlighted this matter with the government.
The agricultural and retail sector will get a boost due to the Flipkart-Walmart deal. Walmart will look for venues to revamp the retail sector by offering more varieties to the customers at lower prices. Amazon will also fight back with a similar strategy.
The company has said that it will support small business and ‘Make in India‘ through direct procurement as well as increased opportunities for exports through global sourcing and e-commerce. Walmart is also in plans to partner with Kirana owners and members to help modernize their retail practices and adopt digital payment technologies (PhonePe). The company also aims to reduce food wastage by improving waste management practices and investing in supply chains, especially cold storage. It also announced to support farmers by developing supply chains through local sourcing and improved market access.
Both the companies are also in talks to invite additional investors, that could result in a small decrement in Walmart’s share. Though the company will continue to own the controlling stake. The company also aims to transform Flipkart into a publicly-listed, majority-owned subsidiary in the future.
Flipkart’s cash on delivery strategy was a big hit in its expansion plans. The company also introduced a few more initiatives like – No Cost EMI (Credit and Debit card), Buy-Back Guarantee, Exchange offers, Cashless Credit, Pay Later Service etc. to attract new customers.
Flipkart has announced its Big Shopping Days Sale, it would start on May 13 and would continue till May 16. The company has already some of the offers on the dedicated webpage.