The Return of Walmart in India
World’s largest retailer Walmart always had a keen interest in India but only time will tell if it can gain the trust of its new customers like Flipkart
India’s economy is growing at a rapid pace, with a growth rate of 7.4 percent, it is expected to touch 7.8 per cent in 2019 according to International Monetary Fund (IMF). India’s retail sector is also undergoing a revolutionary change and growing consumer demands and technological advancement are major reasons behind its emergence.
Global players see massive opportunity in the Indian market and are investing heavily. In retail sector too, we have seen the entry of big foreign companies over the years and the recent deal between India’s biggest e-commerce player Flipkart and American giant Walmart is a testimony of this.
The Flipkart-Walmart deal of whopping US $16 billion, valuing the company at nearly US $21 billion, was the world’s biggest ecommerce deal that people will remember for years to come. Walmart has been around for 11 years in the Indian market, but failed to build its own empire like Amazon. The Indian government too discouraged Walmart’s entry to open multi-brand retail stores in the past.
Since Walmart was not allowed to open its own stores it partnered with Bharti Enterprises Pvt Ltd in 2007, but they didn’t manage to control the consumer-facing end of business.
As the problems increased in the joint venture, Bharti enterprises parted ways from the joint venture, which closed the gate for Walmart to do business in India. There is no doubt in saying Walmart always had a keen eye to invest in the Indian market. It was the most vocal proponent of prying open India’s restrictive retail market to foreign supermarket operators. This year in January, the government allowed single brand retailers to open stores in the market, but restricted multi-brands retailers by doing so.
The company’s dream was shattered once again of having its own stores.
Walmart may still struggle to open its own e-commerce business because India does not permit foreign investments in online retailing.
The U.S giant made a backdoor entry in India by acquiring 77 per cent stake in Flipkart. The acquisition could be seen as the preferred route by the company to enter Indian retail market that still bans FDI in Multi Brand and online retail. Of course, it is debatable, how this deal will change the landscape of Indian e-tail market.
Suresh Reddy, Chairman and CEO, Brightcom Group Limited sees the Walmart - Flipkart deal having a significant impact on the Indian advertising scenario. Commenting on the deal he said, "I see this deal changing the balance of power between brands and third party e-commerce. Brands and retailers will both need to bolster their marketing spends, as a significant portion of increase will be through online and mobile. Considering the prices can no longer be the biggest leverage for them; quality, customer service and other intangibles will have to be emphasized upon. The business that won the trust of customers by constructing their brand around the needs of the market will come out as a winner. However, one thing is for sure, the deal will not only increase the e-commerce sales but also impact online advertisements.”
Sumit Peer (Founder and CEO, Aurelius) an IT Expert, believes there will be a change in the start-up ecosystem, stressing further he said, “The deal is exciting and a day of awakening in the start- up ecosystem. I am sure this will inspire a few 100 million entrepreneurs in the country irrespective of their size and type of business. With Walmart coming in with its global pricing policies, strategies, business practices and image how will it handle this challenge? This will be biggest task! No point in guessing what billion spends need rather demand billions in returns also, which I am sure there will be a plan but challenges in my opinion are magnanimous. We hope to see these been handled and customers also getting a realistic taste of e-retail.”
Some points to ponder:
Founded in 2008, Flipkart is one of the most successful Indian start-ups. In the last 10 years of its business it acquired 10 companies mainly Myntra, Jabong, Phonepe and ebay. By having a stake in controlling an entity like Flipkart, Walmart can have a long run in the Indian retail space.
Rivalry between Walmart and Amazon
Since the very beginning, Walmart has always been in an intense battle with Amazon, not only in its home-grown country US, but in other countries too. Amazon is widely considered best in online retail space. In the coming days, the fight between Amazon and Flipkart for Indian leadership will become extreme with Walmart buying Flipkart. Both will work aggressively now to cater No.1 position in the etail market. Amazon has committed an investment of $5 billion for its operations in India. Recently, Amazon CFO emphasized on the enormous opportunity they see in India.
It is interesting to note that Amazon tried buying Flipkart before entering into the Indian market in 2012, but failed to do so. It is being reported that this time too, Amazon tried and entered midway in negotiation, but didn’t succeed and Walmart emerged as the winner.
However, the competition between the two big giants will surely benefit the market as well as boost the share of online in retail market.
Walmart has a bad history of hampering small businesses and now the online sellers are a little sceptical of being kicked out by Walmart. They fear that Walmart might bring its own private labels via Flipkart, adding extensive pressure in the market and making it tough for small retailers to survive. However, Walmart in a statement said, “We will support small businesses and will partner with kirana stores to modernize their retailer practices and adopt digital technologies”.
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