THE dramatic shift occurring in India’s massive retail sector is expected to get a further boost with the acquisition last week of Flipkart, the leading online retailer in the country, by Walmart, the American giant.
Walmart is paying a whopping $16 billion for a 77 per cent stake in Flipkart, and has neatly beaten its key rival, Amazon, for a significant presence in India.
India’s retail market, which had been dominated by small-time merchants reluctant to modernise, adopt new technologies or take partners, has undergone a massive change over the past decade.
And heralding the change were two young and tough entrepreneurs — who also happened to have worked with Amazon — Sachin Bansal and Binny Bansal (incidentally, the two are not related).
They started Flipkart in 2007 in Bangalore, two years after they met at the Indian Institute of Technology, Delhi. The company began by selling books, music, movies, games and electronics, before catering to the booming mobile phone business in the country.
The last decade has seen Flipkart emerge as India’s top e-commerce marketplace and Amazon has had a tough time trying to eat into its market share. The Flipkart group also acquired other firms selling online products including Myntra (which it bought for an estimated $300 million in 2014) and Jabong (for $70m two years later).
Last year it bought PhonePe in a bid to challenge Paytm, the largest mobile wallet player in India. Amazon of course came up with its Amazon Pay outfit, and even though Paytm continues to dominate the market, Flipkart has been injecting large amount of funds into PhonePe, with the total expected to top $750m.
Another international acquisition was the India unit of eBay; the American giant made a $500m cash investment in Flipkart’s equity in exchange for control over its India operation.
According to estimates, India’s retail sector is expected to more than double to touch $1.8 trillion in less than a decade
Flipkart also pioneered concepts including ‘cash on delivery,’ ‘no cost EMI’ (equated monthly instalments on loans), and easy returns of products that did not satisfy their customers.
In a country where postal services continue to be atrocious and even private courier operators have a lot to improve, Flipkart made remarkable breakthroughs. Today, it caters to the needs of 100m users across 800 cities and ensures more than half a million deliveries every day. And it has more than 10m daily visits on its site.
Importantly, it has about 100,000 sellers who use the platform and sell a mindboggling 80m items. Flipkart reported net sales of $4.6bn last year, a hefty 50pc jump.
One of the major shareholders in Flipkart is Japan’s SoftBank, controlling about a fifth of its shares. It invested about $2.5bn in the company last year.
Last week, Masayoshi Son, the founder and CEO of SoftBank, said it had reached an agreement to sell its stake in Flipkart at more than double the price it paid.
Other major international stockholders include China’s Tencent Holdings, Tiger Global and Accel Partners. Last year, Microsoft invested $1.4bn in Flipkart.
FOR Walmart, India is one of the most attractive retail markets in the world, given its size and growth rate. “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 CEO.
As a company, Walmart is transforming globally to meet and exceed the needs of customers, he adds. “And we look forward to working with Flipkart to grow in this critical market. We are also excited to be doing this with Tencent, Tiger Global and Microsoft, which will be key strategic and technology partners,” he added.
The American retail giant has been eyeing the Indian market for long time. It first entered into a joint venture with telecom major Bharti for a cash-and-carry business (as India does not allow international companies to enter the retail sector).
However, the partnership fell a few years ago and Walmart has been operating independently. It has 21 cash-and-carry stores and a few other facilities in about a score of Indian cities.
Walmart, however, is confident of the emergence of India as a major retail market. It expects online shopping to expand by more than 35pc annually over the next five years. But it has had to sell off its stake in other global operations, including disposing of its UK supermarkets business to Sainsbury’s for $4.1bn.
Walmart has also been battling its American rival Amazon over the acquisition of Flipkart. It is expected to partner with Alphabet Inc, the parent company of Google, while running the Flipkart business in India.
Amazon is committed to invest about $5bn in its Indian operations and has been aggressively encroaching on Flipkart’s market share of late.
According to an Amazon India spokesperson, the company will continue to invest in new technology and infrastructure to ensure rapid growth. It will launch innovative India-first initiatives, besides new offerings including Echo, Prime, Prime Video and Prime Music.
One reason why the two major international retailers (Walmart and Amazon) are battling desperately to control the emerging Indian market is its tremendous potential for growth.
According to estimates, India’s retail sector is expected to more than double to touch $1.8 trillion in less than a decade.
Of course, consumers will continue to gain substantially as the two global leaders will chase them with rock-bottom prices and hefty discounts. But the biggest losers would be the traditional groceries and small shops, who will find it difficult to take on the might of the world’s largest retailers.
Ultimately they will have to sell their produce through these two onsite retailers and see their margins getting squeezed over a period of time.
Published in Dawn, The Business and Finance Weekly, May 14th, 2018
