The most talked about deal this year has finally come through. Walmart has now acquired Indian e-commerce portal Flipkart. The news was confirmed by Softbank CEO Masayoshi Son during the company's earnings call. The deal has been finalized at USD 15 billion.
"Last night, (they) reached a final agreement and it was decided that Flipkart will be sold to America's Walmart," said Son.
Softbank, who owned 20 percent shares of Flipkart, was its largest investor. Post the deal the 20 percent stake will be worth USD 4 billion as per Son. He had bought this stake for USD 2.5 billion. Analysts say this could be the biggest deal in the e-commerce - retail sector.
Alphabet, the parent company of Google, is likely to participate in the investment with Walmart to buy 75 percent stake in Flipkart. The company is expected to invest USD 3 billion as a part of the deal.
For a while Walmart had been scouting for a company to make inroads leading to the Indian online market. The world’s largest retailer, Walmart had received tough competition from Amazon that had also made bids to buy Flipkart. The sheer population of India creates a huge user base for Walmart. Considering that the population is now adapting fast to online shopping, it makes it the most ideal time to tap into the market.
Will Amazon make a counter offer to Walmart?
Amazon had already been aggressively expanding in India. Founder Jeff Bezos has promised to pump in more than USD 5 billion to win the Indian online retail market. In a recent letter to investors, Bezos reiterated his plans to invest in the country by highlighting Amazon.in as the fastest growing marketplace in India.
He also revealed Prime now has over 100 million members, and the service added more members in India in its first year than in any other geography in Amazon’s history.
After losing in China to Alibaba and JD.com, Bezos clearly would not want to take any chances with the next biggest market outside of US. According to a report by Forrester, Amazon India was behind Flipkart by only one percent in GMV market share last year. However, this lag widens when you picture in Flipkart's subsidiaries like Myntra and Jabong. It is now going to be interesting, how Amazon will tackle the combined capabilities of Walmart and Flipkart.
“I see the competition getting more aggressive as Amazon counteroffers Walmart for a stake in Flipkart. Both have their own sizeable cash reserves, and the outcome in India will determine the access to its growing middle class consumers for dominance, outside of the US,” said, Adrian Lee, Research Director, Gartner.
Indian e-commerce market
According to a report by the Internet and Mobile Association of India (IAMAI) India will have 500 million internet users by June 2018. This is a huge jump from 481 million just six months back, mainly attributed to low data rates and low priced smartphones entering the market. The increase can also be attributed to the penetration of internet connection into rural areas of the country. Due to this increase, Morgan Stanley has predicted 30 percent annual growth in GMV in the e-commerce market to USD 200 billion by 2026.
Here is what Adrian Lee, Research Director, Gartner has to say about the deal.
“Expect the status quo to remain within the year after the Flipkart-Walmart deal is completed. This is an extension of Walmart’s global expansion strategy. This should not be observed without mention to Alibaba Group’s intent to become the third player in India.”
“Consumers should not expect significant changes in their shopping experience. However, user choice should be improved, with a greater range of Walmart private labels differentiating the merchandise. Flipkart will diversify its inventory to attract more Indian consumer segments that still haven’t started shopping online.”
“With the massive user base, India looms as an attractive market for retailers. It’s currently estimated that 15 percent (200 mil) Indian consumers will be shopping online by end of 2018, and the relatively untapped growth potential is attracting the commerce giants. Homegrown companies stand to benefit in the long run. As consumers are more attuned and comfortable to shopping online with ecommerce marketplaces, we see vertical specialists (largest categories being fashion, second electronics) benefiting. High value, more discerning consumers who want differentiated choices and unique offers will seek out specialists to fulfill this need.”
“Smaller players constantly face a problem of scaling up their operations. However, this does not mean that they will be forced to exit. The smaller players in many cases are more agile and open to new business models. They should concentrate on specialization within their domains to build up a valuable cache of users seeking differentiated retail experiences.”
“For now, as ecommerce penetration in India remains low (at 15 percent), I fully expect discounts/promotions to continue unabated. As the ecommerce players mature into more profitable businesses, it is very unlikely that discounts will stop. More of the promotional support will be passed back to the suppliers who want the user traffic.”