Walmart vs Amazon: Battleground India
With the Arkansas-based retail chain holding talks with Flipkart, the stakes for both giants have gone up a notch
Adecade into India, the world’s largest retailer Walmart is in advanced talks to start a new innings in the country. This time with a partner that started up famously as an online bookstore around the same time that America’s retail giant was busy signing on the dotted line with Sunil Mittal-led Bharti Enterprises to get a foothold in the country.
Walmart’s India journey from Ludhiana, Mittal’s hometown, to Bengaluru, the headquarters for Flipkart, has been rocky, with broken relationships, allegations of lobbying with policymakers and thwarted ambition in an adverse regulatory environment playing their role. More than anything else, the journey captures how the allure of retail has shifted from physical to online, at least for the moment. Now, it’s all about striking a balance between tapping growth online and betting on the formidable size of physical retail as the lines between the two sides are blurring, say company executives.
That explains why Walmart never gave up despite the odds. When Carrefour, international retail major from France, left the country a few years ago as it saw no hope of the multi-brand category opening up for foreign chains (though up to 51 per cent foreign direct investment was allowed by the previous UPA regime), there were doubts around Walmart’s survival. But Walmart, though it separated from Bharti group in 2013, clung to its wholesale business, which is rather insignificant when compared to the world of consumer retail, to look for the next chance in a fast growing economy with a billion plus people. If the Arkansas-based chain manages to seal a deal with Sachin Bansal and Binny Bansal-founded Flipkart, its intense rivalry with Amazon in the US will find a new battleground.
Walmart’s battle with Amazon and its desperate search for a strong online partner in India, however, are connected to investors’ restlessness, according to a consultant. Walmart’s e-commerce sales rose 23 per cent in the fourth quarter of fiscal 2018, disappointing investors and sending the stocks tumbling by more than 10 per cent in a single day— the biggest fall in decades. The rise in online sales fell well short of the projected 40 per cent. Walmart blamed the slow sales on Jet.com, an online subsidiary it had acquired in 2016. It also said it didn’t have enough inventory to fulfil shoppers’ demand during the holiday season. Flipkart’s high-pitched events like the Billion Day sale, already giving Amazon tough competition, and thousands of its sellers with large inventory can fill in the gap for Walmart, an industry insider pointed out.
Walmart’s online foray has been almost nonstop. It acquired 100 per cent in a Chinese e-commerce business Yihaodian in 2015, upping the 51 per cent stake it picked up in 2012. It struck a $3.3-billion deal with American online company Jet.com in 2016. In the same year, Walmart and JD.com, China’s largest e-commerce company by revenue, formed a strategic alliance. Last year, it acquired others such as Moosejaw, ModCloth, Bonobos and Parcel in an online-offline combination. Walmart has been in the news lately for filing a series of patents for drones. So far, Amazon was piloting e-commerce delivery through drones. Reports of alleged fudging of numbers by Walmart in a bid to close the gap with Amazon also surfaced last week.
An analyst pointed out that even if the deal with Flipkart matures, Walmart will continue to wait for India’s regulatory environment to loosen up so that it can open its signature physical stores (big box retail) under the multi-brand retail category. It knows that online is a tiny proportion of the total retail universe and that the brick and mortar potential is still huge, he added.
According to the US Census Bureau, online sales made up for 9.1 per cent of retail sales last quarter. For India, the Economic Survey said the e-commerce pie would cross ~2.1 trillion this fiscal. In India, e-commerce sales (without travel) are estimated at below five per cent of the total $670-billion (around ~43 trillion) retail market. As Future Group’s Kishore Biyani, considered the retail king of India, argued recently, online retail faces a threat from physical retail and not vice versa. Biyani pointed at global examples of Alibaba and Amazon increasingly buying physical retail to suggest “the times have changed”.
Indeed, Jeff Bezos-led Amazon invested $14 billion recently to buy Whole Foods with its 500 physical locations. There is a reverse movement of online biggies spending on physical stores in the midst of many bankruptcies and closures of retail giants such as Toys “R’’ Us. That precisely is why the war between Amazon and Walmart is getting even more intense — the retail giants have realised the blurring lines between physical and online and are in a race to be on top in both the worlds, according to industry experts.
The talks between $500-billion Walmart and unlisted Flipkart, valued at more than $12 billion, for the American retailer wanting to buy a substantial stake in the online firm came into the public domain in January when the top bosses of Walmart visited the Bengaluru office of Flipkart. Walmart CEO Doug McMillon along with e-commerce chief executive Marc Lore and international business chief Judith McKenna met the top management at Flipkart, triggering reports on how SoftBank, the largest investor in the online firm, may resist a deal. People close to the development said Masayoshi Son-led SoftBank would be an important factor while striking the deal, but there was no breakdown in talks. SoftBank had put in $2.5 billion last year in Flipkart to pick up around a fifth of its stake. Bankers and board members are learnt to be engaged in working out the stakes and the valuations for a Flipkart-Walmart deal.
Meanwhile, it’s business as usual at Walmart. Executives there have tracked the developments only from news reports. The usual townhall meetings or video-conferencing with staff have not taken place yet to let everyone know the scale of Walmart’s online push. Other than the top management, Walmart employees in India are busy fine-tuning the cash and carry (wholesale) business plans. At 20 stores, Walmart wants to more than double in three to four years, all in the wholesale space.
Walmart has maintained it wouldn’t comment on media speculation and that the top team of the group was in the country for business review. Flipkart hasn’t commented either. Indications are that announcements may be made within days. While Amazon is waiting and watching before stepping up its investment to take on Flipkart along with Walmart, both known to Bezos only too well, customers could look out for another round of deep discounts.