Flipkart-Walmart deal: What works and what does not? 

Last week, the Indian e-commerce sector witnessed one of the biggest acquisitions of its kind when retail giant Walmart bought majority stake in Flipkart. While the big announcement was officially made on Wednesday that Walmart has acquired 77 percent stake in Flipkart for USD 16 billion, talks are still on to invest an additional USD 3 billion. CIO India spoke to various analysts and industry experts to understand the implications.

 

What works?

Better customer experience, growth for ancillary industry

“It is a good sign for the industry as large investments coming to Indian e-tailing market will lead to better customer experience and global best practices being implemented in India,” said, Anil Kumar, CEO of Red Seer Consulting. Kumar further added that the deal can impact ancillary industries also.

“It will also positively impact the ancillary industries like logistics and SAAS products, as the industry will invest more to provide better experience and value to the stakeholders. For Walmart, this will be a good way to get entry into the fast-growing Indian e-commerce ecosystem,” adds Kumar.  

Gartner research director, Adrian Lee said that the deal could mean more choice for customers. “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,” says Lee.

*/ /*–>*/   “It is a good sign for the industry as large investments coming to Indian e-tailing market will lead to better customer experience and global best practices being implemented in India.” Anil Kumar CEO, Red Seer Consulting

Walmart’s entry into Indian e-commerce sector 

“Walmart has been looking to get into the Indian retail market for more than 15 years; but the regulation of not allowing FDI into multi-brand retail, making it impossible for Walmart to access the Indian market. Walmart tried to enter via a wholesale model with Bharti in India but failed. Now they see online as the only method to enter the Indian market, which leaves Flipkart as the best investment option for Walmart,” said Satish Meena, senior forecast analyst, Forrester.

*/ /*–>*/   “They can build the same business in 24 to 30 months with USD 5 billion or USD 6 billion. Even if they had paid a premium of 40 percent, they could have made it USD 10 billion. Anything more than USD 10 billion they have over paid.” K. Vaitheeswaran Co-founder, FabMart; Father of Ecommerce in India

For Flipkart: “For Flipkart, this deal is more than just money. If they are looking to raise more funds they already have Softbank as a backer. However, to remain the number one player in India (Amazon coming a close second in just 4 years in India), they are looking to expand beyond smartphones and fashion. This deal with Walmart can provide Flipkart the expertise of running offline stores, access to sellers, manufacturers and supply chains, and the know-how to get into the grocery segment. Amazon has been selling grocery in India for the past one year while Flipkart has not rolled out this category. With Amazon closing the gap in categories other than fashion, Flipkart needs Walmart to remain competitive in the long term.”

  What does not work?

Walmart has overpaid K Vaitheeswaran, founder of FabMart, the man who is also known as the father of e-commerce in India, feels that Walmart has over paid for Flipkart.

“I feel Walmart has overpaid for Flipkart. I feel anything above USD 5 billion to USD 6 billion is too much. They can build the same business in 24 to 30 months with USD 5 billion or USD 6 billion. Even if they had paid a premium of 40 percent, they could have made it USD 10 billion. Anything more than USD 10 billion they have over paid. So clearly USD 20 billion is more than twice the amount,” adds Vaitheeswaran.

Wrong message to Startups

According to Vaitheeswaran, while it is good that startups are getting good exits, the deal also indicates that sustainability and profitability is not important as long as paper valuation is achieved.

“The deal shows that investors can put money in Indian startups and get big returns. But also the risk here is that, it also communicates to startups that it is right to build enterprises that do not make money. Sustainability and profitability is not important as long as a startup builds valuation. I am personally of the view that this is not correct. My view is that this is not the right way to build startups; building sustainability and profitability is critical,” Vaitheeswaran adds.