Having completed the world’s largest e-commerce acquisition, Walmart is now all set to tap the twin opportunity of wholesale and online retail in India.
On Aug. 18, Walmart said it has closed the agreements for it to become the largest shareholder in the Bengaluru-based Flipkart Group. First announced on May 09, the acquisition was pending approval from fair trade regulator Competition Commission of India (CCI).
The Bentonville-based firm has bought around 77% stake in India’s largest homegrown e-retailer for $16 billion (Rs1 lakh crore).
This gives the company access wider access to India’s $600 billion retail industry.
The e-commerce industry in India already has a turnover of $27 billion. This is estimated to cross $73 billion by 2022, representing nearly 5.7% of total retail sales in the country. Meanwhile, Walmart already has a presence in the country’s Rs6,800 crore wholesale sector.
No wonder Walmart is all geared up.
“The Flipkart investment transforms Walmart’s position in a country with over 1.3 billion people, strong GDP growth, a growing middle class and significant runway for a smartphone, internet and e-commerce penetration,” Walmart said in a press release on Aug. 18.
Walmart has been eyeing business in India for the last decade. However, given the country’s prohibitive policies, its operations here have been restricted to the wholesale segment where 100% FDI is allowed.
In May, when the US retailer first announced that it would acquire Flipkart, there was strong resistance from local trade bodies saying small traders will be hurt. Traders protested across Indian cities. But all this is behind now.
“Walmart and Flipkart will achieve more together than each of us could accomplish separately to contribute to the economic growth of India, creating a strong local business powered by Walmart,” Judith McKenna, president and CEO, Walmart international, said in the statement.
The investment will also see Walmart push its low prices—a strategy it follows across its stores worldwide—in India via Flipkart. “Our investment will benefit India by providing quality, affordable goods for customers, while creating new skilled jobs and opportunities for suppliers,” the company said in the statement.
Following the deal, Walmart and Flipkart will continue to operate as separate entities.
However, going forward, Flipkart’s financials will be reported as part of Walmart’s International business segment.
“Flipkart’s existing management team will continue to lead the business,” Walmart said in the press release. “Tencent Holdings and Tiger Global Management LLC will remain represented on the Flipkart board, in addition to independent board members, and will be joined by new members from Walmart. The board will work to maintain Flipkart’s core values and entrepreneurial spirit while ensuring it has strategic and competitive advantages.”
Also, in the near-term, the deal is likely to take a toll on Walmart, the company said.
In May, at the time of the acquisition announcement, the company had estimated a negative impact of $0.25-$0.30 on earnings per share (EPS) for fiscal 2019.
But the deal could take years or even decades to start showing returns. “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,” Walmart Inc president Douglas McMillon said during a recent investor meet about the Flipkart deal.
For Flipkart, however, Walmart’s entry could mean some changes in the near-term itself.
“We will definitely see some back-end efficiencies taking place soon,” said Yugal Joshi, vice president at consulting and research firm Everest Group. “Walmart is known to squeeze the waste out of the system. Waste from [the] supply chain, distribution, warehouse management, etc. So they will add value to Flipkart’s back-end.”