Why Walmart bought Flipkart?
India is the next frontier in ecommerce and its investment in Flipkart provides an opportunity to partner with the local leader in the market to transform how people shop, Walmart said on Wednesday.
The US retail giant, which picked up a majority 77% stake in India's homegrown ecommerce major Flipkart for a consideration of $16 billion, said it looked at India because of the huge growth potential for the ecommerce industry offers in the country.
Walmart considers India as a key global growth market as it sees four times faster growth in ecommerce market than total retail through 2023. "The country's GDP grew at 9.4% CAGR over the past 10 years. The growing middle class and availability of 443 million millennials made us to look at acquiring Flipkart," Walmart said in a presentation to investors.
Walmart will immediately focus on serving customers and growing the business and support Flipkart's ambition to transition into a publicly-listed, majority-owned subsidiary in the future.
"India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of eCommerce in the market," said Doug McMillon, Walmart's president and chief executive officer.
Founded in 2007, Flipkart has led India's eCommerce revolution. The company has grown rapidly and earned customer trust, leveraging a powerful technology foundation, including artificial intelligence, and emerging as a leader in electronics, large appliances, mobile and fashion and apparel.
While Walmart and Flipkart will leverage the combined strengths of both companies, they will maintain distinct brands and operating structures. Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India, with more than 95% of sourcing coming from India, aiding suppliers, creating skilled jobs and contributing to local economies across the country.
Flipkart's supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily. In the fiscal year ended March 31, Flipkart recorded GMV (gross merchandise value) of $7.5 billion and net sales of $4.6 billion representing more than 50% year-over-year growth in both cases.
Flipkart acquired 11 companies and invested in seven companies. The Indian ecommerce market is expected to grow from $38.5 billion as of 2017 to $188 billion by 2025, and is expected to surpass the US to become the second largest ecommerce market in the world by 2034.
Analysts feel that it is going to increase competition in India's ecommerce market.
The deal will give additional ammunition to Flipkart to compete with its American rival Amazon, which on Tuesday announced infusion of Rs 2,600 crore additional capital.
"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," Adrian Lee, Research Director, Director said.
The competition will get more aggressive as Amazon counter offers 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, he said.
"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," Lee added.