Will Walmart provide money power for Flipkart to take on Amazon? A win-win deal may be in making
Walmart is looking at buying a small equity stake in Flipkart for which both the companies are likely to hold talks later this week
Faced with rising competition from the online retail giant Amazon at home and other global markets, US-based multi-billion dollar retail czar Walmart Stores Inc has been steadily ramping up its presence in the online retail business through minority stake buys in etail companies of late.
While having a presence in India for quite some time through its Wholesale Best Price stores, Walmart is evaluating its strategy to team up with the country's largest ecommerce company Flipkart to counter Amazon's growing influence here.
According to a report in The Economic Times, Walmart is looking at buying a small equity stake in Flipkart for which both the companies are likely to hold talks later this week.
However, both Walmart and Flipkart have termed the news as speculative.
The likely talk comes close on the heels of the US retailer entering into a deal with China's second-largest ecommerce firm JD.com in June amid growing competition from Alibaba Group Holding. As per the terms of the deal, Walmart will get a 5 percent stake in JD.com worth $1.5 billion in exchange for selling its online grocery store to the Chinese ecommerce firm. Two months later the US retail major announced up a deal to acquire Jet.com for $3.3 billion to spruce up its ecommerce business.
Although Walmart remains undisputed leader in the US retail market, its ecommerce business has been facing challenging times in recent years. In 2015, Walmart's ecommerce sales stood at $15 billion as against a whopping $99 billion revenue posted by Amazon from its online sales, the ET report said.
Back home, there is no clarity on the percentage holding and total value Walmart could negotiate with Flipkart. But the deal could be win-win situation for both. For Flipkart, a minority stake sale could bring in fresh funds into the company and help further compete with Amazon. Also, Flipkart can leverage Walmart's global supply chain and use the latter's wholesale stores in Jammu, Chandigarh etc. among other locations for pickup and delivery points.
In case of Walmart, holding a minority stake in Flipkart will help it to have a presence in the country's growing ecommerce market besides allowing it to sell goods through multiple channels, the ET report added. The US-based retailer can also eye the home-grown etailer's rising user base. Last week, Flipkart said it has crossed the 100-million registered users mark, becoming the first e-commerce company in the country to hit the milestone. The Bengaluru-based company has also doubled its user base over the last year and added 25 million users in the past six months alone.
The company is engaged in a battle for supremacy with Amazon and another domestic challenger Snapdeal, where all three are slugging it out to notch up robust volumes in the forthcoming festival sales offer starting later this week.
The Jeff Bezos-controlled Amazon has already announced big plans for India. The Seattle-based online giant had last year announced a plan infuse $3 billion in Indian operations, taking its total investment commitment for the country to $5 billion.
Expanding into other verticals of the online segment, Amazon is on the verge of launching Prime Video in India, and has partnered with Karan Johar's Dharma Productions and Vishesh Films, which will give the company access to about 80 blockbustres.
The teaming up with the Dharma and Vishesh is also aimed at gaining more customers and fighting Flipkart.
A recent Bank of America Merrill Lynch report had said Amazon is improving its foothold in India and it could be the second biggest player after Flipkart in the online retail market by 2019.
The country could also become Amazon's second largest market (after the US) as it plans to invest $5 billion here.
"For last couple of months, Amazon India gross sales are higher than that of Flipkart standalone (excluding Myntra)... We now expect Amazon's GMV (gross merchandise value) market share to improve to 37 per cent by 2019 from 21 per cent in 2015 and expect it to be close No 2 behind Flipkart," the report said.
While revenues are relatively small to Amazon's global scale, Amazon India could generate $81 billion in GMV and $2.2 billion in operating profit by 2025.
Most of Amazon's gains have come at the expense of Snapdeal and other sellers, not Flipkart, according to the report. Flipkart still remains the market leader in India and "even in terms of customer satisfaction, reports indicate that it remains the leader, ahead of both Amazon and Snapdeal", according to the report.
Whoever wins the battle in the end, one thing is for sure there are interesting times ahead for e-commerce customers in India.
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