Walmart’s $16 billion acquisition of Indian e-commerce firm Flipkart raised several doubts in the minds of the company’s investors back in the US. The concerns were mostly to do with Flipkart’s huge losses, which even led to the Bentonville-based company’s shares taking a beating following the May 09 announcement.
A month later, Walmart is still making the case for undertaking the world’s largest e-commerce acquisition. On June 01, it held a question-and-answer session with the investor community, where Flipkart was a recurrent topic. The transcript for the meet was published on Walmart’s website.
Below are the edited excerpts of what Walmart Inc president Douglas McMillon and Walmart International president Judith McKenna said about the decision-making process before the Flipkart acquisition, and the company’s outlook for India:
Why we invested
We basically want to be in places that have a tremendous opportunity, which is what led us to Flipkart in India. And when you look at the size of the market, 1.3 billion people, you look at the GDP growth in the market, look at retail growth in the market, look at e-commerce growth in the market, and then you start to understand that Flipkart has a strong management team. They built out an ecosystem. It’s not just a pure e-commerce business, but there are complementary platforms within that business.
Our time horizon may be a little different than some of you may want it to be. But we have a view that a good investment should be made even if it takes a little bit of time to pay back, but it should be big enough to matter. So we’ll be much more interested in doing a few big bets than lot of little things as we try to maintain focus for the company.
If you’re in international business and growth is one of your objectives, then India is a market in which you want to operate. It was the right time for us to go in now as e-commerce is still developing in that market, in addition to the fact that it’s a growing-quickly economy. E-commerce, we’ve still got penetration of a roundabout 2%, and that’s forecast to grow rapidly. And as many of you know, those forecast curves that you look at, virtually everywhere around the world have accelerated faster than their original curves.
But what’s really unusual about Flipkart is that it’s not just an e-commerce retailer. What we’re really interested in as we’ve got to understand this business better is it’s actually creating a platform, an ecosystem, if you like, of operating within that market.
There are two trading arms within Flipkart. And you can see those under the general e-commerce flag of Flipkart itself, which is primarily a general merchandise site and, by far, the biggest part of the business. But then there’s Myntra and Jabong. And Myntra and Jabong are apparel, clothing retailers. They’re really interesting in the speed they’re growing at and the mix that they provide with the overall e-commerce business as well.
The other part of it is the infrastructure…You’ve got an infrastructure part, which is eKart. eKart is the logistics arm of Flipkart. It operates over 800 cities already. It is about 0.5 million deliveries a year, but it’s unique to Flipkart, in that it’s got its own logistics network that sits behind the trading platform.
The final part of the equation that creates the platform is called PhonePe. PhonePe is the payments business. Now its primary function is to facilitate payments within the Flipkart group, but it’s actually also an open system.
What we internally debated before the deal
We had a debate…given the amount of investment that would be needed to win in India, what the plan was that Flipkart had, the contingencies that could happen as a result of our entry, would that put pressure on our ability to win in the US, which is our most important market. So that was one of the key debates. When it comes to the time horizon, we have a plan. We’ve seen Flipkart’s plan as it relates to how we would scale it and what profit and loss would look like that we’re comfortable with.
We really believe in omnichannel and seamless. We think that’s what the customer wants…And sometimes, you don’t get to pick the timing of these things. They emerge, and you either do them or you don’t do them. In the case of India, it’s worth it. If it had been a smaller market, we may have passed. But this is a unique opportunity.
And when you look out five, 10, 20 years from now, time will tell. But we’re confident that we’ll look back at it and say, “Yes, that was a big bet. It was a bold bet.” Timing might have been earlier than we had wanted it to be otherwise. But we’re glad we took it. We’re not running this thing for one year.
We are targetting omnichannel
So on India physical stores, we’ve got 21 cash-and-carry stores today in India. And we’ve already announced that we’re going to do about 50 more stores over the next couple of years. So Walmart India, the cash-and-carry stores, and Flipkart in the short-to-medium term will remain separate entities and will trade separately, although clearly sharing ideas and getting synergy where we can. I think around the world, what you are seeing is a trend to omnichannel.
We know we need to be patient in India
As it relates to tolerance in India, we factor that into our models. As it relates to where does it stop, I think you can step back and look at the world and ask, “How many opportunities are there in the world with a population and growth rate like India?” And the answer is, not very many. We’re in China. We like our position in China. We’ll keep working on that particular market, but if you step back and ask priorities, it’s the US, Canada, Walmex, including Central America, China, and India. Those are our priorities.