Photo: Walmart, Doug McMillon of Walmart and Binny Bansal of Flipkart
Walmart outbids Amazon for India’s Flipkart
Walmart announced today that it has signed a definitive agreement to become the largest shareholder in Flipkart. With an offer of $16 billion, Walmart outbid Amazon.com, which was rumored to have made an offer of $15 billion for the Indian e-tailing giant.
Subject to regulatory approval by Indian authorities, Walmart will own a 77 percent stake in Flipkart, which will become an independently-operated subsidiary of the retailer. The plan is for Flipkart to eventually go public with Walmart maintaining its majority stake.
“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market,” said Doug McMillon, Walmart’s president and chief executive officer, in a statement.
“While eCommerce is still a relatively small part of retail in India, we see great potential to grow,” said Binny Bansal, Flipkart’s co-founder and group chief executive officer. “Walmart is the ideal partner for the next phase of our journey, and we look forward to working together in the years ahead to bring our strengths and learnings in retail and eCommerce to the fore.”
Flipkart, which was founded in 2007, is credited with a strong logistical operation as well as one with deep insights into the needs and wants of Indian consumers. The company’s supply chain division, eKart, makes 500,000 deliveries on a daily basis to more than 800 cities in India. The company reported net sales of $4.6 billion for its last fiscal year, a more than 50 percent increase.
Walmart India will continue to operate as an independent entity. The company operates 21 Best Price cash-and-carry stores and one fulfillment center in the country.
The deal for Flipkart follows the announcement last month that J Sainsbury Plc agreed to acquire Walmart’s Asda division in the U.K. Walmart, which acquired Asda in 1999, will own roughly 40 percent of the combined company.
In an email to RetailWire, Moody’s lead retail analyst Charlie O’Shea said the credit ratings firm viewed the Flipkart deal “favorably as it provides Walmart with immediate scale in the burgeoning Indian e-commerce arena.”
While noting that “Flipkart is expected to generate meaningful losses for at least the next few years,” Mr. O’Shea, added, “This is clearly an investment for the future, and when viewed in tandem with the recently-announced sale of a majority stake in Asda, is indicative of Walmart’s long-standing strategy of shifting resources into higher growth potential markets and segments when opportune.”
Discussion Questions
DISCUSSION QUESTIONS: What will Walmart’s stake in Flipkart mean for the two companies going forward? Will control of Flipkart have a measurable impact on Walmart’s competition with Amazon?
Poll
BrainTrust
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
Mike Osorio
Vice President Retail, Tori Richard Principal, Osorio Group LLC, dba JAM with Mike®
This deal gets Walmart both significant geographic expansion in India and logistical expertise in a burgeoning, complicated market – it also blocked Amazon’s ambitions. While I don’t see the Flipkart acquisition having an immediate impact on its war with Amazon, I do think it will prove to be a very important long-term play in the global battle for customers.
I would say trading Asda for Flipkart is a fabulous move. The first is in a mature market with way too many competitors, and the second is in an emerging market with lots of upside.
Honestly, a great win.
Paula, succinct and accurate … you can drop the mic and walk out of the room….
You are funny!
Yep, I second that.
Congratulations, Walmart. Always exciting to watch the juggernauts battle it out. I only hope that this highly strategic move did not escalate the price too much. Last-mile delivery is the most expensive cost burden, so getting it right and securing the right resources sets Walmart up for success … and might impede Amazon’s expansion. Of concern is Flipkart’s lack of profitability. Walmart has a lead … but they have to keep it up, as Amazon will pivot, replan and adjust — but they aren’t going away. Best of luck, Walmart!
Walmart is clearly committed to success and growth of physical retail as the mainstay of consumer service and satisfaction. As they grow their ecommerce business, it is important that they at least keep pace with online retailers rather than enduring the expense of playing catch up. Walmart is to be applauded.
Walmart has been pursuing a path to India’s middle class for a decade. Despite Amazon’s attempts to play spoiler in this deal, Flipkart’s interest and alignment with Walmart’s strategy were more than enough to counter a higher offer.
For Walmart this move gives them immediate credibility and leadership in a very attractive retail market. This is a solid strategic move to tap into the growing middle class segment of India and potential gateway to rest of Asia. The deal can bring to Walmart the type of growth we haven’t seen since the 1990s. For Flipkart, the deal is expected to make it more difficult for Amazon to gain traction in the Indian market.
Kudos to Walmart for commitment to increase the diversity of their business DNA. Another key decision to ensure Walmart’s best days remain ahead.
Taking a majority stake in Flipkart is prudent, not least because it gives Walmart immediate access to one of the largest and fastest growing retail markets in the world.
While Flipkart is successful, it is small in the context of the market as a whole and there is enormous potential to scale it. Walmart can provide the capital and expertise to make that happen.
The deal also reduces Walmart’s reliance on mature Western markets and ensures that it will remain dominant on the international scene, despite the rise of both Amazon and Alibaba.
Walmart, which has struggled on its own in India, gains a food hold in the important Indian e-commerce marketplace and, in one step, becomes a forceful competitor to Amazon. This move is similar to its purchase of Jet, in that Walmart gains instant credibility and the key personnel necessary to move the business forward.
Flipkart seems to place Walmart in a strong position in the Indian market. The greatest strengths of Flipkart are its knowledge of Indian consumers and their logistical expertise. Given the size and complexity of the Indian market, the logistics will be critical to success of any player in the market.
Now Walmart has a tiger by the tail. This tiger will force them to quickly learn how to win in a complicated market. Walmart is so good at test, learn and apply that I see this as a big win.
Walmart left India once before because of not understanding Indian consumers or the marketplace. Flipkart has knowledge of Indian consumers and distribution. If Walmart is willing to learn from Flipkart and adapt, then there is a good chance of success. If Flipkart can make this deal work, then they have great potential for growth.
Where to begin. I like and respect Walmart. However:
And now Walmart has chosen to make a $16B investment in Flipkart, a company that has been severely impacted by Amazon. I used to live and work in India and Amazon is universally viewed as the company to work for in e-commerce. Amazon has a better team of executives, better technology, better supply chain and logistics capabilities, and a better strategy. Amazon is favored to dominate India’s e-commerce industry as Amazon is fighting a guerrilla campaign in India that is winning the hearts and minds of India’s consumers.
The danger for Walmart is that Wall Street has little patience with Walmart in terms of their earnings and profits. Amazon has wide latitude with Wall Street. Walmart’s e-commerce growth has slowed in the USA and there is a real possibility that Walmart will withdraw from Brazil. Alibaba and Amazon could surprise everyone and choose to collaborate in India or Alibaba on their own could implement strategies to go after the weaker Walmart/Flipkart.
If Walmart/Flipkart incurs losses at the level I estimate over the next three to five years in India, Wall Street will punish Walmart’s stock and there will be calls for Walmart to exit India regardless of the potential of retail in India.
Amazon understands that their best strategy is to outlast Walmart in India. Simply put — India has the potential to become Walmart’s Vietnam.
I see how you state India has the potential to be Walmart’s Vietnam but the reasons you listed make it clear that Walmart may find India a difficult environment. I’ve read your posts before and you always stand out from the crowd. The phrase “Walmart’s Vietnam” is classic.
A strong move by Walmart on both ends. Keeping a 40% stake in Asda allows them to benefit from the potential of a slower growth market. The 77% majority stake in Flipkart enables Walmart to further their long-term commitment to the high growth potential in India, utilizing a partner with a keen understanding of this huge and highly complex marketplace.