Walmart’s Flipkart Acquisition – An Analysis

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It is a moment of pride for the Indian start-up ecosystem and a moment of awe for retailers as Walmart acquires Flipkart for $16 billion in the world’s biggest e-commerce acquisition. Under the terms of the deal, Walmart will own 77 percent of the stake in Flipkart.

Considering that Amazon has been arduously framing policies to compete with local businesses (in sectors such as grocery) to become a global retail blockbuster, to expand and deepen seller base, to strengthen logistics and to make technological investments, this bold deal by its arch-rival Walmart is not much of a surprise.

Despite Walmart’s consistent attempts over years to enter India, it has remained confined to a ‘cash-and-carry’ wholesale business amid tough restrictions on foreign investment. At its 21 best price wholesale stores in India, Walmart has been striving to sell everything from FMCG to furniture. The new deal with Flipkart will enable Walmart to have a crack at the Indian market and explore new opportunities. This is an equally enticing proposition for Flipkart as well. Till now, Flipkart’s main weapon to grow its business has been its investors’ money, and the deep discounts it offered to customers. The deal with Walmart will not just provide additional funds to Flipkart, but also extensive expertise in logistics, supply chain management and retailing, that will further its aim of becoming India’s leading e-commerce platform.

Creation of a Global Retailer now Possible

This alliance of Walmart with Flipkart can result in creating a global retailer in the market. The brand equity of Flipkart is well known and deep-rooted in India. As India is a large market promising attractive long-term growth, this acquisition has given Walmart an edge in becoming a global retailer by giving it access to approximately 10 crore online customers. This deal accelerates the gradual globalisation of supply chains across diversified categories of products. The deal will help the customers have better access to a variety of goods, that too at a lesser price, giving Walmart a competitive advantage against Amazon.

Walmart is well known for its expertise in merchandising, global sourcing, pricing, etc. which can be by Flipkart to its advantage. Without this acquisition, the organisational bandwidth and energy would not have been easy for Walmart to build in India. The sweat and blood spared by Flipkart’s founders and management team for the last 11 years could not have been compressed. Especially so as Amazon might not have left Walmart a lot of time to build itself in India.

Impact on Online Sellers

Walmart has the reputation of killing small businesses by introducing lower prices than them. As a result, online sellers selling their goods on Flipkart are nervous. There is a fear among them that in order to gain a competitive edge, Walmart might introduce its own private labels via Flipkart, adding pressure on them to lower their prices and reduce their profit margins. A spokesperson of the All India Online Vendor’s Association said, “These products would be brought in at hyper-competitive prices, which will cannibalise the market and make it difficult for other sellers to operate. We are studying the situation and will take appropriate action, including the legal route, if necessary.” [TOI]

Boost for the Economy

The battle between Flipkart and Amazon for retail leadership will undoubtedly intensify after the entry of Walmart. However, there are going to be positive impacts as well. In addition to creating a humongous supply chain infrastructure, it will also create job opportunities. India’s total consumption is expected to rise to $3.6 trillion in 2027 from $1.3 trillion in 2016, according to industry data. The retail market is expected to hit $1.8 trillion from $650 billion in 2016. Of this, the biggest driver is expected to be food. [Economic Times]

The American giant Walmart will revolutionise the Indian retail sector with low prices and a vast variety of consumer goods. Amazon’s fight-back will ensure that prices remain competitive.

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