Walmart to take on Amazon through Flipkart deal
Walmart, which is in the process of taking a stake in Flipkart, is looking at the investment as a way of taking on Amazon and tapping the offline retail sector in the country.
Flipkart will enable-Walmart to operate in India’s offline retail space, which largely continues to be served by small unorganised retailers. For Flipkart, the deal could help it tap a much broader base of consumers.
“For these players to grow faster, they will have to assimilate and co-opt the offline environment as well. When investors are asking them to grow faster, they will have to address the 95 per cent of the pie,” said Manish Maheshwari, former head of Flipkart’s marketplace business.
Unlike in the West and China, where large-format retail dominates the offline space, India continues to be dominated by neighbourhood stores. This could be the reason why online retailers are exploring offline routes much earlier than their counterparts in other parts of the world.
Walmart’s negotiations with Flipkart reportedly included a proposal to open an offline retail chain. If the proposal is approved, Walmart can sell directly to consumers, something it has been trying to do for years, rather than just running a wholesale business here.
“This has been in the pipeline for some time now and the ongoing discussions have more to do with the shareholding pattern. Strategically this makes sense and it is the right time for this to happen as well, that is why the valuation is also much higher,” said a source close to the development.
Walmart has offered to buy Flipkart shares on the primary market at $20 billion, while the secondary component of the deal will be at a lower valuation.