Walmart Weds Flipkart

Walmart’s multi billion-dollar deal with Flipkart

Aditya Pantham, Class of 2019

E-commerce in among the most competitive and fastest-growing industries in India today. Anyone with basic access to the internet has most likely used it, whether for buying a last-minute present for someone or desperately searching for the 10 different textbooks their teacher said are “compulsory” for a course. Regardless, there is a huge market for this industry, and the big firms are always looking to dominate, such as the foreign e-commerce giant Amazon, which arrived on India’s shores back in 2012 to give competition to our homegrown business Flipkart. Since 2016 it has been known that Walmart was in talks with Flipkart to invest several billion dollars. It is now being said that the $7 billion will close later this month, and also a much-needed push to compete against the also aggressively expanding Amazon.

Earlier this year, Jeff Bezos, founder of Amazon and world’s richest man had pledged to invest $5.5 billion in Amazon India, allowing the company to expand its online presence significantly. It has already entered in the food retailing business, offering its customers groceries through Amazon Pantry. At present, Flipkart controls nearly 40% of India’s online retail market, staying ahead of Amazon, and Walmart’s cash injection is sure to help maintain that position. Flipkart is the world’s third most privately-funded start-up, with companies like Tencent, Microsoft, eBay, and Softbank investing in it, with a valuation of $14.2 billion as of August last year.

Let’s try to understand the possible effects of such major investment. After raising funds from Tencent as well, the primary investment in Flipkart will have had a 100% increase from $10.2 billion to $20–22 billion. This will make Flipkart the fourth most valued start-up in the world with a valuation over $20 billion, behind Uber, Airbnb, and WeWork. Walmart’s negotiations with some of the other investors, such as South African media giant Naspers, and the New York-based Tiger Global for secondary share purchases will cause the latter to either lower their share or completely exit, making these exits among of the largest India’s start-up industry has ever seen.

For years, Walmart has tried to gain a proper foothold in India: even with tough restrictions on foreign investment, it has been able to operate 21 stores here. Back at home in the United States, Walmart has also been fighting a losing battle against Amazon, so it appears it is trying to fight back on the global scene. Talks have been going on about Flipkart since February and it has been a shaky negotiation due to stake distribution issues with Flipkart’s current major investor, Softbank, who own 23–24% of the business. Recently however, negotiations have finally reached a turning point, with Softbank agreeing to partly sell some of its stake, allowing Walmart to own the majority stake. With Walmart in the business, it is possible for Flipkart to expand its offline presence in response to Amazon’s increase in online presence.

This investment will also be a major step in working against Amazon having total market dominance on the international e-commerce scene. Walmart did not have much choice here as the only alternatives to Flipkart were Amazon and Alibaba. Walmart and Flipkart’s alliance will allow them the best of both the online and offline worlds, with Walmart holding immense experience being one of the world’s largest retailers, and Flipkart allowing them a large entrance into the online industry. Previously, Walmart lobbied for the Indian government to give an open market for foreign retailers, but was met with limited success. Amazon, on the other hand, wants to lead the Indian retail industry, which is expected to reach a $1.1 trillion valuation by 2020.

Perhaps the most important aspect for us buyers is that the Indian e-commerce industry will receive a boom, with this deal being of the largest global funding till date. Competition between the e-commerce companies will provoke development of the industry as they fight for market dominance. Buyers can also expect improved offline presence due to Walmart’s involvement. Overall, Walmart’s investment is sure to bring about big changes.