India is considered to be the big potential prize for global retailers after US and China. Foreign retailers have struggled to make any progress against Alibaba Group Holding in China. On the other hand, the soaring market estimates of $200 billion along with ever-increasing mobile internet bandwidth and cheap rates have made India a hot e-commerce destination.
The Walmart Vs. Amazon battle
The deal implications go beyond the Indian online market, far reaching the US retail sector where Walmart is at loggerheads with Amazon fighting a bruising battle. In earlier attempts Walmart had acquired startup Jet.com for $3.3 billion deal in August 2016, putting the platform as one of its front-runners in online shopping strategy. Amazon responded by taking a bold step by acquiring Whole Foods Market for $13.7 billion to get an entry into the brick-and-mortar retail business.
Walmart is three times larger than Amazon by revenue, with its sales crossing $500 billion in 2017 with more than 11,000 stores worldwide. But, it has always struggled to get headway in the e-commerce industry with global online sales being less than 4%. The 2017 figures reveal, Amazon online sales reaching close to $55 billion, compared to Walmart managing to earn less than $15 billion via their e-commerce sales.
Walmart’s ‘India’ ambition
Flipkart’s upper hand to Amazon in Indian online business with an estimated market share of more than 35% has pushed Walmart into one of the biggest e-commerce deals at approximately $16 billion. This deal will give Walmart another chance to have a crack at the Indian market, coming around with a different choice of strategy. Walmart may collaborate with Alphabet Inc, a Google parent company; with Walmart likely to buy approximately 77% stake, while Alphabet may cash close to 15% stake. Walmart entered India in 2009, through a joint venture with Bharti Enterprises and later took full control of that venture in 2013. It currently operates about 20 wholesale stores in the country that serve small businesses. That’s impressive!
The Flipkart Advantage
Flipkart is India’s first billion-dollar e-commerce company with a registered user base of 100 million, selling more than 7 million products across more than 100 categories. Walmart’s deep pockets will help Flipkart reach new heights by taking advantage of the former’s rich retailing expertise and skills in marketing to logistics. They have the capability to change the entire online selling spectrum by introducing their own private labels through Flipkart at hyper-competitive prices. This will create a hurricane in the market making it difficult for small players to survive.
Consumer will be the Ultimate King
The deal will once again bring the two competitors Walmart and Amazon face to face with Amazon’s earlier attempt to pick controlling stake in Flipkart, having failed. The regulatory hurdles favored Walmart because of its lack of India presence in e-commerce space.
Amazon has made its intention clear by announcing to invest over $5 billion in India in the next two to five years with Amazon India being one of their fastest growing marketplaces. It has recorded the highest prime loyalty programme membership in India than any country globally. The tug of war between the two retail giants along with other players will provide the consumer an opportunity to explore multiple products at discounted prices. The quest to gain market dominance will lead to innovative marketing and loyalty programs making way for a consumer-oriented approach.
To sum it all K R Sreenivasan – CEO and Founder, Infoholic Research points out, ‘The Walmart-Flipkart deal will completely change the startup ecosystem in India. It will be a benchmark for global investors who want to put their money in Indian start-ups. It will encourage venture capitalist to take bets on innovative ideas creating a new market consortium.’
– Pavan Mudholkar,