To Challenge Amazon, Walmart Looks To Set Up Retail Chain Through Partnership With Flipkart

Less than two days after reports surfaced that US-headquartered retail giant Walmart is looking to acquire more than 40% stake in Flipkart, sources close to the development now claim that the proposed investment deal will include a provision to set up a chain of retail stores across the country.

If the deal goes through, it would allow both companies to forge a strong offline presence, just as rival Amazon recently became the first foreign company to start a food retail venture in India.

Commenting on the development, an investment banker in the know said on condition of anonymity, “Flipkart has been trying to foray into offline stores for a long time and has been looking for the right partner.”

Although Walmart is keen on acquiring a majority stake in the Indian ecommerce unicorn, sources believe that it would likely get only around 20% control in Flipkart.

Given that the ecommerce firm received a massive $2.5 Bn investment from SoftBank in August 2017, as a follow-on to its earlier $1.4 Mn fundraise from Microsoft, Tencent and eBay, it is highly unlikely that SoftBank will be willing to dilute its 23.6% shareholding in Flipkart.

The current FDI norms allow foreign entities like Walmart to own only a limited stake in an Indian company for multi-brand retail. Consequently, the Sam Walton-founded company cannot directly open retail stores in India at present.

However, Walmart already has a strong presence in the country through its B2B arm, which currently boasts a network of 21 Best Price Modern Wholesale stores. The partnership with Walmart, therefore, would not only increase Flipkart’s cash balance significantly but would also enable it to expand its footprint in the offline retail segment.

If the deal materialises, Flipkart will be able to procure grocery and consumer goods directly from Walmart’s wholesale stores, which would, in turn, ensure better delivery speed and product availability.

Additionally, it would allow Flipkart customers to make online orders and pick up the purchases from the brick-and-mortar retail stores.

Elaborating further, the source cited above stated, “Walmart may have to establish a marketplace seller (akin to WS Retail) that can sell consumer goods via Flipkart.”

While Flipkart is looking to get ahead of Amazon is the Indian ecommerce space, Walmart’s strategy is to challenge Amazon’s global monopoly by buying new and existing shares in the online market.

An Overview Of The Flipkart Walmart Saga

Talks between the two companies for a potential alliance date back to 2016. At the time, Inc42 reported that the partnership would allow Flipkart to leverage Walmart’s global supply chain and increase efficiency in procurement, product assortment, and further improve its technology platform.

On the other hand, Walmart could gain a foothold in India’s largest ecommerce company. This would also fulfil the US company’s omnichannel strategy of selling goods through various channels.

Recently, in January 2018, it was said that Walmart was in advanced talks to acquire a significant minor stake in Flipkart. As per reports that emerged at the time, the talks could be finalised by March 2018.

As part of the negotiations, Walmart CEO Doug McMillon also reportedly led a delegation of Walmart Ecommerce CEO Marc Lore and COO Judith McKenna at Flipkart’s Bengaluru office.

According to sources, the global retail giant is planning to spend somewhere between $5 Bn-$10 Bn to acquire a substantial stake in Flipkart. If the investment goes through, it would reportedly catapult Flipkart’s valuation to more than $12 Bn from its current valuation of $11.6 Bn, making it one of the biggest cross-border deals ever made in India.

This comes at a time when Amazon has already entered the food retail segment in India. As per reports that emerged recently, the ecommerce behemoth will now sell locally made and packaged food to the consumers directly and will compete with other leading online grocery and food retail marketplaces like Grofers, Bigbasket, Supr Daily, who received similar approvals from the government for food retailing.

With Flipkart and Walmart in the process of joining forces, how the war in the Indian ecommerce and retail segments pans out will make for an interesting watch.