American retail giant Walmart’s $16-billion acquisition of Flipkart will likely bolster the Bengaluru-based online retailer’s position in the neck-and-neck contest with Amazon in the Indian e-commerce market. Also, the entry of a promoter with deep pockets into the e-commerce space will accelerate the push towards e-tail adoption in the country. The immediate impact of the deal, which is expected to close by the end of this calendar year, could come in the form of fresh fund infusion of $ 2 billion into Flipkart, which will help it to keep up its aggressive pricing strategy against Amazon.
According to Walmart’s investor presentation, India’s e-commerce market is projected to grow four times faster than total retail over the next five years. While the consolidated retail segment is seen growing only 9% between 2017-18 and 2022-23, the e-commerce segment is expected to grow by around 36%. The growth in e-commerce is projected on the basis of increasing smartphone penetration in the country, which is estimated to be 58% by 2020, compared with 30% in 2017.
This growth of online retail could be bad news for unorganised retailers, who as per estimates of Greyhound Research, constitute about 90% of the $650-billion retail sector in India. However, Walmart has said that as it scales in India, it would support small businesses through direct procurement as well as by increased opportunities for exports through global sourcing and e-commerce. “Among other initiatives, Walmart will partner with kirana owners and members to help modernise their retail practices and adopt digital payment technologies,” the company said in a statement.
Along with Flipkart, the acquisition would add the company’s other platforms such as fashion e-tailers Myntra and Jabong, digital payment firm PhonePe, and logistics arm Ekart to Walmart’s portfolio. Together, Flipkart, Myntra and Jabong command about 70% of the market share in the fashion category. Ekart has a presence in 800 cities, and makes over 500,000 deliveries every day.
Walmart brings with it experience in areas of traditional retail such as logistics, sourcing of goods and supply chain, which could be leveraged by Flipkart to strengthen its operations. “With the acquisition of Flipkart, Walmart will be able to extend its expertise in managing physical goods in the digital world — a strength that Flipkart lacks. To put this in context — supply chain is also the strength of Amazon, Flipkart’s ace competition. This strength, we believe, is a significant differentiator in a marketplace dominated by thin margins and worsened by steep discounting policies,” said Sanchit Vir Gogia of Greyhound Research.
According to a report released in March by Forrester Research, India’s online retail market is still in its nascent stage, clocking $ 27 billion in sales in 2017-18 — minuscule in comparison with the $ 1.11 trillion in online sales netted by China. Walmart’s purchase of Flipkart could help the Beast of Bentonville in taking benefit of the Bengaluru-based company’s market presence, prowess in technology and customer insights that would complement Walmart’s presence in India through its 21 Best Price cash-and-carry stores and one fulfillment centre in 19 cities across nine states.