THE WALMART-FLIPKART DEAL
After months of speculation, the $500 billion US retail giant Walmart has bought a 77 per cent stake in the homegrown online retailer Flipkart for a consideration of $16 billion (over Rs 1 lakh crore), pitting itself directly against rival American firm Amazon in India. The deal, one of the largest involving an Indian company, was announced by visiting Walmart CEO Doug McMillon in Bengaluru on May 9.
What explains Walmart’s interest in India? The Indian e-commerce market is expected to grow to $200 billion (Rs 13.4 lakh crore) by 2026, from $38.5 billion (Rs 2.6 lakh crore) as of 2017, according to the India Brand Equity Foundation, a research body under the commerce ministry. This growth has been triggered by increasing internet and smartphone penetration. India’s total internet user base will be 829 million by 2021, or just under 60 per cent of the total population.
Total online spending, including domestic and cross-border purchases, is expected to increase by 31 per cent year-on-year to Rs 8.76 lakh crore ($135.8 billion) by 2018-end. The Flipkart deal is a sort of second coming for Walmart after it called off a joint venture with Bharti Enterprises in the wholesale cash-and-carry business in 2013. The US firm was then accused of attempting a backdoor entry into the multi-brand retail space, where foreign entities are disallowed. It then focused on wholesale cash-and-carry stores, and operates 21 such stores and one fulfilment centre in India. Walmart now plans to scale up its sourcing of
Indian merchandise and farm products to $7 billion (Rs 46,900 crore) over an unspecified period of time.
Swadeshi advocates will be discomfited to learn that India’s largest e-commerce firm is falling into foreign hands. But this was inevitable, and probably the only way Flipkart could stand up to competition from Amazon. In over four years, Amazon India, which offers over 160 million products on its platform, has turned into a formidable e-tail player, garnering a 44 per cent customer share and a growth rate 50 per cent higher than the competition.
Not that Flipkart was a pushover. When IIT Delhi batchmates Sachin Bansal and Binny Bansal launched the portal in 2007, they wouldn’t have dreamt their company would be valued at $20 billion (Rs 1.34 lakh crore) in a little over ten years (Sachin exited the firm post the deal, selling off his 5.5 per cent stake, but Binny will be executive chairman and group CEO, and hold 4.5 per cent). It has been the darling of investors, and following investments from Softbank Vision Fund, eBay, Microsoft and Tencent had in excess of $4 billion (Rs 26,800 crore) cash on its balance sheet as on August 2017. Reports say in the fiscal year up to March 31, 2018, Flipkart saw goods worth $7.5 billion (Rs 50,250 crore), traded on its site.
It’s not yet a done deal, though. Local traders have opposed the move, arguing the deep discounts offered by online supermarkets imperil their livelihoods. The Confederation of All India Traders has demanded state scrutiny of the deal, which it says will encourage predatory pricing. But given that elections are right around the corner in Karnataka, the government is likely to keep its distance.