It is the season for royal weddings.
On 19 May 2018, Prince Henry of Wales married Ms. Meghan Markle at St George’s Chapel, Windsor.
Elsewhere, the Kart entered the Mart when Walmart entered into wedlock with Flipkart. It may not have captured the same attention as the English wedding, but this marriage is something phenomenally big for India.
After months of “yes-no-maybe,” the US retail giant Walmart wrapped up India’s great startup Flipkart, taking a 77 per cent stake by coughing up 16 billion dollars. It places the full value of the business at 1392 billion INR (at Rs 68) or 139,200 crore INR! It is the largest acquisition in India and the world’s biggest purchase of an e-commerce company. With Alibaba’s wanting a chunk of the pie, with Bezos’ Amazon already a by-word and now Walmart getting in, India’s e-commerce industry is in for electrifying fun.
Founded in 2007, Flipkart has led India’s e-commerce revolution. The company has earned customer trust and emerged as a leader in electronics, large appliances, mobile phones, fashion, and apparel. Flip’s biggest pluses have been its integrated ecosystem, which is defined by localised service, profound insights into Indian customers and a best-in-class supply chain. Mark it, it serves more than 800 cities, making 500,000 deliveries daily.
Sources say that for the fiscal 2017-18 Flipkart’s gross merchandise value (GMV) of $7.5 billion and net sales grew by 50 per cent year-over-year growth in both cases.
‘A TRIANGULAR LOVE STORY’ THAT COMMENCED IN 2016
The talks between Walmart and Flipkart began in late 2016. Over the next few months the deal progressed and suddenly there were rumours that Amazon would be throwing its hat into the ring. The Bansals, the co-founders of Flipkart, could not have asked for more. Would it be a threesome people wondered? In the end, these rumours were put to rest and Amazon apparently backed out.
There are SIX reasons why this marriage is made for each other.
• India is the emerging powerhouse for e-commerce. While India’s overall retail market is over 670b dollars in size, online sales is a mere 20b dollars. The space for growth is massive as India begins its dalliance with smartphones and electronic transactions more seriously. And who can be in a better position to crack it than Flipkart, which has a 45 per cent market share? For Walmart, the acquisition is about catching up for lost time.
• Did you know that Walmart has been in India for over a decade? If you didn’t, do not berate yourself. Hardly anyone does, given that Walmart hasn’t been able to snatch anything in the market. India’s FDI rules in multi-brand retail and the Mart’s dissolution of partnership with Bharti Enterprises haven’t helped matters. What it missed in the retail market, it can hope to capture in the online space.
• The online market is a cash guzzler. With Walmart as investor, availability of money will no longer be of great concern for Flipkart.
• Flipkart needs an off-line presence. Although Walmart can’t help Flipkart in mobile and fashion, but it can definitely help in daily household items. But it is not easy to crack offline market due to cut-throat competition from D-mart, Future Group and others. However, Walmart’s expertise will help Flipkart to have a decent presence.
• Walmart has significant expertise in e-commerce. Their top line in e-commerce business grew by 44 per cent in 2017. Walmart would soon launch smart cart technology on its main site. If customers pack more items in one box, use a debit card to make the payment or choose a no-returns option, then they get lower prices under the smart box feature. This strategy can be implemented to make quicker online grocery deliveries and private label brands. Flipkart heavily bets on private label brands and Walmart’s know-how is an asset.
• Walmart in China offers a scan-and-go checkout process. Customers can scan barcodes as they shop along with a tech-enabled stocking system. This allows fast deliveries—less than 30 minutes for a delivery within two kilometers. Like PayTM Mall was able to replicate Alibaba’s QR-enabled stores in India quickly, Flipkart can launch smart stores in India with Walmart’s know-how, alongside offline stores.
DO NOT DISTURB
People are wondering why Walmart paid $16 billion for a controlling stake in a loss-making company? Was the Walmart-Flipkart deal stitched in a hurry? Why is it that a Walmart majority in online retail is acceptable but a Walmart in big box physical retail (read multi-brand retail) an outlaw?
In addition, the Income Tax Department is keeping a close watch on the acquisition. To avoid a Vodafone-type imbroglio, the Central Board of Direct Taxes (CBDT) has written to the Walmart, seeking details of their due-diligence on tax liabilities.
A lot of good can happen through the Walmart deal. The company can partner in agriculture, food and retail. Future investments will bring jobs through development of supply chains, commercial opportunity and direct employment. Walmart may partner with ‘corner shops’ to help modernise their retail practices and adopt digital payment technologies. The deal will support farmers and develop supply chains through local sourcing and reduce food waste by investing in supply chains.
Let’s wait and watch. After all, the baby is far more important than the labour pains.
