Walmart is negotiating to acquire a majority stake in Flipkart, India’s leading e-retailer; sources say the deal could “be announced soon” although “exact terms are not yet final and the talks are fluid.” Flipkart would be valued at $20 billion, according to two of the sources, and Walmart hopes to purchase at least a 60 percent stake in the company. Although buying a majority stake in Flipkart would open up a vast new market for Walmart, which is in heated competition with Amazon, some analysts say the move is risky.
The New York Times reports that, “Flipkart has posted billions of dollars in losses while trying to build its business,” and, “although India has a significant middle class, most of the nation’s enormous population is still far too poor to afford much more than basic necessities.”
Currently, only about “2 percent of India’s retail sales are online now, but tens of millions of Indians are getting onto the Internet every year via cheap smartphones and rock-bottom mobile data prices.”
Amazon established its Indian site in 2013 and is “now a close No. 2 to Flipkart in sales.” Founded in 2007 in Bangalore, Flipkart is the brainchild of Sachin Bansal and Binny Bansal who “worked briefly at Amazon’s back-office operations in India before deciding to form their own company.” The e-commerce site started with books before moving into “a vast array of products,” and had to solve problems “such as customers’ preference for paying in cash and the country’s spotty roads and delivery networks.”
Walmart’s purchase of Flipkart would be one of its largest purchases since the 1999 acquisition of British grocery chain Asda, valued at $16 billion today (adjusted for inflation). In India, where “Amazon has committed at least $5.5 billion so far,” Walmart “operates wholesale stores [but] … has no public-facing retail or e-commerce presence.” Neither Amazon or Walmart were able to establish a major presence in China, and Amazon chief executive Jeff Bezos “views India as his chance to make up” for that failure.
Meanwhile, Walmart is shifting its European efforts. The company announced today that it is merging Asda with rival supermarket chain Sainsbury’s. “Walmart will receive $4.1 billion in cash and a 42 percent stake in the combined business,” reports CNN. “The deal values Asda at $10 billion, and creates a mega retailer with 2,800 stores and combined annual sales of roughly $70 billion.”
If Walmart does purchase its majority stake in Flipkart, it would get “an instant leg up on Amazon in India, but it is still likely to face stiff competition from its primary rival.” The company has tried to bolster its online presence, with the recent purchases of online clothing stores Bonobos and ModCloth, and its own mattress and bedding line and home grocery delivery to 100 U.S. cities.
Deloitte and the Associated Chambers of Commerce and Industry of India say that country’s e-commerce market was $38.5 billion last year and slated to grow to $50 billion this year. “The whole game now is scale,” said Susquehanna International Group retail analyst Bill Dreher.