The most talked about deal in retail sector

Nikhil Bhave
Saturday, 12 May 2018

After much speculation, the Flipkart-Walmart deal is offcially done. The Bentonville behemoth is all set to enter the Indian e-commerce sector following an entry in physical market in collaboration with Bharti that later turned into a sort-of soap opera, which saw falling outs and suspensions, and now a pitched battle in US is heading towards Indian shores.

After much speculation, the Flipkart-Walmart deal is offcially done. The Bentonville behemoth is all set to enter the Indian e-commerce sector following an entry in physical market in collaboration with Bharti that later turned into a sort-of soap opera, which saw falling outs and suspensions, and now a pitched battle in US is heading towards Indian shores.

Per the finer details, Walmart will hold 77 per cent stake in flipkart, with the rest coming from Tencent, Tiger Global and Microsoft. Of the current investors, Japan’s Softbank will exit Flipkart by selling entire 20 per cent stake to Walmart. With the sale, the company expects a negative impact to FY19 EPS (earnings per share) of approximately $0.25 to $0.30.

These numbers aside, what does this mean for the overall Indian e-commerce sector? Saurabh Uboweja, International Brand Expert and CEO Brands of Desire, said, “There are broadly four large players left in the Indian e-commerce sector who will drive sector dynamics to a large extent.

Amazon, Walmart (with Flipkart), PayTM and Reliance (with Jio). Between them, the question to ask is how long will they burn for growth without wilting under investor pressure and how deep are their pockets. It will become increasingly difficult for smaller e-commerce players to sustain and grow on their own unless they focus on very specific niches.

A big matter of concern is the retailers. Unfortunately, Walmart suffers from a less-than friendly reputation when it comes to small businesses. Uboweja’s take on this: In the short term, there may not be many changes in the way business is conducted. Walmart will take time to complete a deeper assessment of Flipkart operations. Their end goal is obviously to introduce operational efficiencies and that may mean taking business transformation decisions. One can’t be sure yet whether that would impact retailers positively or negatively.

One thing seems certain: as of now, the possibility of physical stores seems dim. Walmart has announced that it will add more stores to its current cash-and-carry stores across India, but they deal with wholesellers, not small clients. The company, in a release dated May 9, said it will ‘partner with kirana owners and members to help modernise their retail practices and adopt digital payment technologies’. 

This is one segment that every player in the Indian e-commerce sector has found tough to crack. The local kirana shops can offer the same services, plus add incentives like credit. Per Financial Times, India is the world’s third-largest grocery market with $428bn worth of sales. However, it is fast becoming another Flipkart-Amazon like story with players like Grofers and Bigbasket burning through cash fast and will soon see Walmart-Amazon go head to head in India too. The war may turn out to be a boon for India, as both will try to augment their supply chains, which may prove beneficial to the farmers, too. 

Uboweja says, “The company is likely to continue focusing on expanding the cash and carry format in the near term. They would take some time to assess how the online and offline synergies would work out. Only post that, we may get further clarity on their approach for modern retail going forward.’’

Whether Walmart succeeds in India is a riddle for the future. What one can be definitely sure of is that the e-commerce sector will get a whole lot more competitive now, which may not be good news for smaller players. But, it is an advantage for the consumers definitely.

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