Walmart, Flipkart may gang up on Amazon

NEW DELHI: The world’s biggest retailer Walmart Stores Inc is exploring an equity partnership with Flipkart to take on common rival Amazon in India, two persons directly aware of the development said. The companies are engaged in early talks and a meeting is scheduled this week that will include discussions on Walmart picking up a minority stake in India’s largest ecommerce company, the persons said.
One of the persons said Walmart is likely to discuss a “strategic deal” with Flipkart similar to the one the US retail titan forged with JD.com in China. In June, Walmart acquired a 5% stake in the second-largest Chinese ecommerce marketplace for about $1.5 billion. It’s unclear what stake Walmart would acquire in Flipkart and at what price. A deal would help bolster Flipkart as it seeks to fight a generously funded Amazon. For its part, Walmart would get a firm foothold in India’s ecommerce market.

“As a policy, we don't comment on speculative reports,” a Walmart spokesperson said in an email. A Flipkart spokesperson said, “It is our policy not to comment on rumours or speculations.”

An alliance will allow Flipkart to leverage Walmart’s famed global supply chain and increase efficiency in procurement, product assortment and further improve its technology platform. Walmart’s Best Price wholesale stores that are present in Jammu, Chandigarh, Guntur, Lucknow and Agra among other locations could conceivably be used as pickup and delivery points. The company could gain a foothold into India’s largest ecommerce company, a presence that would have taken Walmart years to build. This will also fulfil the US company’s omni-channel strategy of selling goods through various channels.

Amazon growing at faster clip
Amazon is challenging Flipkart’s leadership position in India and threatening Walmart’s supremacy in the US. Walmart posted about $14 billion in ecommerce sales in 2015, behind Amazon’s $99 billion revenue from online sales.

In the first quarter of this year, Walmart registered 7% online growth, slower than its average growth rate of about 12.75% for the previous four quarters in a row.





Amazon and Walmart are bitter competitors in the US with the former growing faster over the past few years. In 2015, Amazon’s revenue grew by 20% to $107 billion ($99 billion from online sales, the rest from Amazon Web Services) while Walmart’s sales declined by 0.7% to $482 billion. In the second quarter of fiscal 2017, Walmart’s revenues rose 0.5% to $120.9 billion while Amazon reported sales of $30.40 billion, up 31.1% from the year-ago quarter.

Looking to shore up its online presence, Walmart in August acquired Jet.com in the US, a startup gaining popularity among young urban shoppers, for about $3.3 billion in the largest-ever purchase of an ecommerce company.

Expansion in India
Walmart’s expansion in India got stalled a few years ago as the US company focussed on ensuring that its businesses across the world complied with US rules that outlaw bribes paid overseas, following a scandal in Mexico. This among other things led to the breakup of a joint venture with Bharti Enterprises and Walmart’s retreat to the wholesale business-to-business segment.

India’s retail policy is such that neither Walmart nor Amazon are allowed to sell directly to consumers. However, foreign companies can inject 100% foreign direct investment (FDI) into ecommerce marketplaces, the model that both Flipkart and Amazon operate under. The wholesale cash-and-carry channel is the only multi-brand retailing segment in which India allows fully-owned overseas ownership. Walmart’s wholesale Best Price stores sell everything from fast-moving consumer goods to furniture to other retailers and institutions.

India recently announced 100% FDI in brick-and-mortar and online ventures that sell only Indianproduced and packaged food items but that has failed to enthuse investors. They say such shops won’t be viable unless they can expand beyond low-margin food items to other consumer products.

If the deal between Walmart and Flipkart materialises, the war between Amazon and Walmart would spill over into India, the fastestgrowing market for the Jeff Bezosfounded company.

Amazon is expected to clock $10 billion in gross merchandise sales in the next few years, faster than it did so in markets like Germany, Japan and the UK.

Having entered India seven years ago, Walmart now operates 21Best Price wholesale stores. It has 500 stores in China. Its joint venture ended when Walmart declined to purchase a stake in Bharti’s Easy Day stores even after the last government allowed 51% FDI in supermarkets. The tough conditions and corruption enquiry into its Mexico operations prompted the US retailer to launch an in-depth probe into its India operations, stalling all plans.

Big bucks
Flipkart, founded by Sachin Bansal and Binny Bansal as an online book retailer in 2007, has evolved into a full-fledged online retailer with more than 100 million registered users.

The company was valued at $11.55 billion in August, down from the peak of $15.2 billion when it last raised capital in July 2015. Flipkart’s investors include Tiger Global, Qatar Investment Authority, DST Global, GIC, Naspers, Accel Partners, Morgan Stanley and T Rowe Price. It owns two of India’s largest online fashion retailers Myntra and Jabong, both of which it acquired. As a group, Flipkart has a 70% share of the online fashion business in India.

In June, Bezos announced the Seattle-based online giant’s plans to invest an additional $3 billion in India, taking the overall investment pledge to $5 billion in the last two years.