Walmart is disappointed in India, but it isn’t giving up on Flipkart yet

Is the dream fading?
Is the dream fading?
Image: AP Photo/Aijaz Rahi
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The world’s largest retailer is disappointed in India.

Bentonville-based Walmart has had a tough run with Indian policies for years. Its attempts to open stores in the country for the past 11 years have failed against restrictive foreign direct investment (FDI) norms in brick-and-mortar retail.

However, last May, the US retail giant announced buying a 77% stake in India’s biggest homegrown e-commerce platform, Flipkart, for an eye-popping $16 billion. The acquisition was completed in August.

Online retail in India had a free run until then.

But six months after that, the government implemented several restrictive changes to its FDI policy for e-commerce. The rules, which came into effect from Feb. 01, bar online marketplaces from entering into exclusive deals to sell products and from having a single vendor supplying over 25% of their inventory. They also restrain online marketplaces from manipulating prices.

Following this, major portals like Amazon and Flipkart had to delist thousands of items and scores of sellers.

“In terms of the regulatory environment, we were disappointed in the recent change in law and the lack of consultation,” Doug McMillon, Walmart’s president and CEO, said on the company’s 2018 fourth-quarter earnings call yesterday (Feb. 19). “But the team has worked to ensure that we’re in compliance with the new rules. We hope for a collaborative regulatory process going forward, which results in a level playing field.”

In it to win it

On the earnings call, Walmart said its international operating income had declined 2.8% in constant currency (exchange rates that eliminate the effects of currency fluctuations) and the dilution from Flipkart played a big part in that.

However, the firm is still hopeful about the merits of its deal in the long-run.

“In India, we remain optimistic about the e-commerce opportunity given the size of the market, the low penetration of e-commerce and the retail channel, and the pace at which it’s growing,” McMillion said about India’s retail landscape, poised to touch $1.1 billion by 2020. “In the future, we hope to work with the government for pro-growth policies that can allow this nascent industry and the domestic manufacturers, farmers and suppliers to benefit from it develop and prosper.”

The Flipkart buy wasn’t solely about namesake online retail platform, according to Brett Biggs, Walmart executive vice-president, and CFO. “I would remind everybody that Flipkart is already an ecosystem,” he said, adding it had brought with it group companies like digital payments platform PhonePe and lifestyle marketplaces Myntra and Jabong, among others.

Despite the positive tone, for now, it’s anybody’s guess how Walmart-Flipkart plans to survive the new regulations, competition from behemoth Amazon, and a new rival spearheaded by India’s richest man, Mukesh Ambani. Earlier this month, US investment bank Morgan Stanley even hinted that Walmart may consider exiting its prized India acquisition if the tide doesn’t turn soon.