The race to win India’s eCommerce power player Flipkart is over and won by Walmart with a US$15 billion bid on the firm. The deal will give Walmart of a majority stake in the firm, roughly 75% of the entire Flipkart group. The final outcome has come as a surprise to many.
Kashyap Deorah, internet entrepreneur and author of “The Golden Tap,” told The Wall Street Journal, “I would not have bet on a deal converging between Walmart and Flipkart, primarily because of the culture difference. Walmart is an extensively positive margin-driven culture, and Flipkart has consistently been a gross margin negative business.” He said the deal shows “Walmart considers India as a long-term strategic market.”
Conventional wisdom says India is positioned to see an explosion of eCommerce growth, similar to what has been observed in neighbor China over the last decade or so. Online retail in India was worth about US$20 billion last year but is likely to rise to US$35 billion by 2019, according to Forrester. Venture captialists have invested heavily in India on that speculation—and Flipkart has poured those investment funds into discounts, subsidized shipping and buildout infrastructure in-nation.
Sachin Bansal and Binny Bansal (unrelated), founded Flipkart in 2007, having both worked at Amazon Web Services in India. Like Amazon, Flipkart’s first commercial venture was books, though offerings were expanded over its first decade. It also offers more payment options, including provision for cash-on-delivery orders. The company now says it has more than 100 million customers and sells everything from smartphones and selfie sticks to silver jewelry and spice racks.
But Flipkart has drawn competition, specifically from its inspiration Amazon, which has pledged to spend US$5 billion in an attempt to win the market. And it has been gaining on Flipkart since its 2013 launch with 31% of the nation’s eCommerce spend—compared to Flipkart’s 40%.
According to available corporate filings, Flipkart posted a loss of US$1.3 billion on revenues of US$2.9 billion during the year, ending on March 31, 2017. A year ago, those losses clocked in at US$781 million in lost revenue of US$2.3 billion during in the year, ending March 31, 2016.
Walmart, by statute, cannot sell direct-to-consumer in India, and is limited to wholesale outlets. So far, it has opened 21 Best Price wholesale stores, with plans to open 50 more.
Kishore Biyani, Founder and Group Chief Executive of India’s largest retailer by sales Future Group, said, “I believe Walmart has made a very smart move although they have paid quite a lot.”
Full Content: PYMNTS
Want more news? Subscribe to CPI’s free daily newsletter for more headlines and updates on antitrust developments around the world.
