Walmart has for years tried to enter India but had remained confined to a ‘cash-and-carry’ wholesale business amid tough restrictions on foreign investment. It currently operates 21 such stores in India.
Dong McMillon, President, and CEO, Walmart, observed after the deal:
“India is one of the most attractive retail markets in the world, given its size and growth rate.” That shows how much significance the deal carries for Walmart. The move would also trigger consolidation in the market and will allow the sector to respond to market need gaps in the right manner.
New categories like food and groceries that are very big but have not moved online will receive attention. Marketing intensity will reduce and these are all the positives in the maturing of the sector. The deal is very positive for both e-commerce and the retail sector in general. The sector will now be known as the custodian of the largest FDI deal in India. This has overtaken the $12.9 billion Rosnoft acquisition of Essar Oil.
Leveraging strengths
While Walmart and Flipkart will leverage the combined strengths of both the companies, they will maintain distinct brands and operating structures. The online retail market till now has largely pivoted around fashion and electronics but, these sectors control only 20 per cent of the total retail pie. Many other categories are yet to move online and that may look appetising for Walmart. The Flipkart deal offered Walmart the opportunity to catapult into a leadership position straight away. No other market, apart from China and the US, offers such a big opportunity for Walmart. In the US, it is already a leader and in China, Alibaba is clearly a dominant player. The deal was an attempt by Walmart to control and dominate India’s retail trade through e-commerce which was a bridge to reach out to the offline retail market.
The Walmart wrapping up Flipkart acquisition for $16 billion, a valuation of over $20 billion, makes it the world’s biggest e-commerce deal. Walmart will own around 77 per cent of the Bengaluru-based company in what is also being seen as the largest buyout for the US firm. The deal, which will see founder Sachin Bansal of Chandigarh region exit completely, will now pit US-based giants Walmart and Amazon in the Indian market. The deal is going to shake things up.
Walmart’s investment includes $2 billion of new equity funding, this will help Flipkart accelerates growth in future. The world’s biggest retail deal will impact the whole segment, the competitors, and the consumers. The online sellers on Flipkart are jittery because Walmart can wipe them off. Walmart, a $500 billion American behemoth, has a reputation of killing small businesses with ultra-low prices. They fear that Walmart might bring in its own private labels via Flipkart to the Indian consumers, adding to competitive pressures.
For the Indian start-up and venture-capital (VC) ecosystem, this deal is the most triumphant moment, marking a remarkable victory for an Internet start-up that was launched a decade ago in a country that has for the longest time been starved of major m start-up exits. This deal also has massive ramifications for several stakeholders across the board. The deal completely redraws the e-commerce landscape in India and escalates Walmart’s global battle against Amazon.com Inc., its biggest rival in the US. Several tens of billions of dollars are at stake on both the sides. While this has been a positive outcome for this Flipkart and all its stakeholders, the e-commerce landscape in India now is essentially going to be dominated by two American giants.
Biggest acquisition
The Flipkart deal is the most significant acquisition in the history of Walmart and for Walmart, this deal represents a fight for everything it has built over the past five decades and a massive bet on the future of retail. Flipkart will be the centerpiece of Walmart’s global e-commerce ambitions, given India’s stand of being one of the world’s last remaining major internet economies. While Amazon has missed out on an opportunity to buy out Flipkart, it will be business as usual for the world’s largest online retailer. Company insiders at Amazon said that they had long anticipated a situation where they might have to fight Walmart in India. Moreover, from Amazon’s perspective, its domination as the global online retailer has forced its biggest American rival Walmart to fork out $16 billion for what is easily one of the most expensive acquisitions ever — a clear acknowledgement that Walmart is trying hard to make up for lost time by not investing more aggressively on e-commerce earlier.
The major beneficiaries are Flipkart stakeholders including investors, founders, and employees. A number of current employees have turned dollar millionaires overnight, while early investors such as Accel Partners and Tiger Global Management, and even late-stage investor, Japan’s SoftBank Group, have made a killing — Accel, Tiger, and Softbank put together have raked in an exit of over $8 billion. This deal should catch the eye of a number of large, foreign strategic investors who have been eyeing India for a long time. Broader start-up funding is expected to go up, while the number of ventures starting out is also expected to rise, after witnessing two consecutive years of decline. The Indian e-commerce has been both a winner and loser because of this deal. While Flipkart’s buyout marks the biggest victory ever for an Indian Internet start-up, it also means that for the foreseeable future, the online retail business in India will be controlled firmly by two large American companies — Walmart and Amazon. It will be a bruising battle for supremacy.
Now, Flipkart will be positioned as the arrowhead for Walmart to have another crack at the Indian market, four years after it broke its joint venture with Bharti for a cash-and-carry business. This time around, Walmart’s choice in India is starkly different. While Flipkart has absorbed billions of dollars of investor money to rapidly grow its business, its main bait has been deep discounts. Walmart’s investment would give Flipkart not just additional funds to fight Amazon, but also arm it with a formidable ally with extensive experience in retailing, logistics and supply chain management.
Walmart has been engaged in a bruising battle with Amazon — in the US and elsewhere. While its home turf is under threat from Amazon, which is pushing more and more people to shop online and even buying old-school players like Whole Foods, Walmart has been desperate to globalise its business and build its own technological strength. The war between an empowered Flipkart and Amazon will shrink the space for smaller players because it will ensure that prices, quality, and delivery remain highly competitive.
India’s total consumption is expected to rise to $3.6 trillion in 2027 from $1.3 trillion in 2016, according to industry data. The retail market is expected to hit $1.8 trillion from $650 billion in 2016. Of this, the biggest driver is expected to be food and grocery, pegged at $1.1 trillion in 2027 from $420 billion in 2016, which will drive a separate and similarly substantial investment by Walmart
in agriculture.
Gains
The agriculture and infrastructure sectors will get a big boost due to competition between Flipkart and Amazon. Farmers will benefit from increasing demand. It can also boost overall consumer demand. New jobs will be created through the development of supply chains, commercial opportunities, and direct employment.
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