Flipkart on Thursday announced the acquisition of Walmart’s Indian operations. We try to analyse what led up to this moment.
Flipkart is an Indian e-commerce company founded by Sachin Bansal and Binny Bansal (no relation) in 2007. They started off by selling books online, just like Amazon did in the mid-90’s. The company quickly scaled from its humble beginnings and added electronics, home-essentials, lifestyle products and fashion to its list of products. American multinational company Walmart holds an 81% stake in the company as of 2020.
Today, Flipkart has grown into a brand quite close to the heart of every urban and semi-urban citizen. They offer a wide range of services that go beyond the line of a traditional online shopping website. Through multiple acquisitions, Flipkart has made their presence felt in the everyday lives of Indian consumers.
Out of the many subsidiaries of the company, these are the notable ones
- Myntra.com, acquired in 2014
- PhonePe, acquired in 2016
- Ekart Logistics
On May 8 2018, Walmart publicly announced it had signed agreements to become the largest stakeholder in Flipkart. The deal worth $16 billion saw the US retail giant picking up a 77% stake in the Indian company. This stake was quickly raised to 81.28% within just a few months of the landmark deal. In July 14 2020, Flipkart raised a further $1.2 billion from Walmart by issuing fresh equity shares. Valuations stood close to $25 billion.
India has been one of the fastest growing countries in the world, and with growth comes an increase in wealth. As the middle-class family in India got richer, their disposable income increased. Higher disposable income among the relatively young population of the country led to a quick increase in spending. E-commerce services began to be major facilitators of these higher spending habits, and soon Flipkart and rival Amazon(launched Indian operations in 2012) began to be recognized as household brands across the country.
Walmart’s entry into the Indian e-commerce segment was a direct result of pressure from Amazon’s growing influence in growing markets around the world. It was seen as a shift of playing field for these huge companies from the US to India. “While Walmart and Flipkart will leverage the combined strengths of both companies, they will maintain distinct brands and operating structures”, Walmart had said in its initial press release. But a lot has changed in the last 2 years.
Flipkart has acquired a 100% controlling interest in Walmart India for an undisclosed amount, further intensifying the retail war in India. Walmart currently runs 28 Best Price wholesale stores across India. The company also announced ‘Flipkart Wholesale’, a B2B(business-to-business) service to be launched in August. The marketplace would aim to link manufacturers and sellers to micro, small and medium enterprises (MSMEs).
“The B2B market for finished goods is estimated to be worth USD 650 billion. To start with, we will be focusing on USD 140 billion of that USD 650 billion, which is largely the categories of fashion, grocery, general merchandise, large and small electronics,” Flipkart Senior Vice President and Head – Flipkart Wholesale Adarsh Menon told PTI.
Major rival Amazon has its own B2B service, established to serve the same purpose. Amazon had shown interest earlier in purchasing Future Retail’s business, to further its hopes of becoming market leader, dethroning Flipkart. The deal is said to have been closed with controlling interests of Future Retail to go into Mukesh Ambani’s hands. Reliance, earlier this month, had announced JioMart in its AGM. DMart, the retail and B2B major from India, posting a huge drop in revenue last quarter is a signal of the tightening margins in the industry.
Walmart-owned Flipkart has picked up about 27% stake in Arvind Fashions NSE 2.41 % Ltd’s subsidiary Arvind Youth Brands for Rs 260 crore, according to sources and a regulatory filing by the denim maker, as the homegrown ecommerce company looks to strengthen its mid-market fashion portfolio.
Flipkart picked up 27% stake in Arvind Fashions Limited’s subsidiary Arvind Youth Brands for Rs 260 crore, earlier this month. The subsidiary will own the Flying Machine brand, which has been retailing on Flipkart and its platforms for over six years. Flipkart is surely setting all its coins in place to prepare for the upcoming retail war.
Recently, news also came out that Amazon is eyeing a 9.99% strategic stake in Reliance Retail. Amazon, the world’s richest company, is certainly taking India as a primary focus going forward and these talks signify that.
With seemingly unlimited money being thrown from both Amazon and Walmart into India, small scale retailers face ever growing pressure to fall into line, or to go out of business. The B2B segment, in which both US conglomerates currently have their targets on, may also see high growth rates in the coming years. India, being a market with huge untapped economic potential, may also see the retail segment flourish in coming years.
Pressure on multinational companies(MNCs) to go hyper-local, may also see an increase in jobs being generated in various sectors around the country. As a responsible citizen, I personally do hope that clear rules and regulations are set and enforced by the government to protect our markets and its consumers