Bloomberg reported that Wal-Mart is currently negotiating with India’s biggest online retailer, Flipkart Online Services Pvt. Ltd. However, the question that the world’s biggest retailer is asking is whether Flipkart is actually worth $20 billion.
India’s online retail market is pretty much a three-player market at the moment. Amazon.com is, of course, the giant that Flipkart and the third major player in the market Paytm E-Commerce Pvt. are trying to fend off. Paytm is getting its backing from Chinese retail giant, Alibaba Group Holding Ltd.
Wal-Mart is currently negotiating a proposal that would give it a one-fifth stake in Flipkart. Flipkart has given a valuation of $20 billion on the deal, but internal sources that have requested to stay anonymous say that Wal-Mart is offering $15 billion for the deal. The deal is in its advanced stages, though nothing is finalized yet, said the sources.
Currently, Flipkart’s largest stakeholders are SoftBank and Tiger Global Management. If Wal-Mart and Flipkart can agree on the 20% stake, then the retail giant will become the largest stakeholder in Flipkart.
This will take the competition between Amazon and Wal-Mart one notch higher. The deal with Flipkart will give Wal-Mart another angle from which to challenge Amazon’s dominance in the online retail market. The two companies have been increasingly encroaching on each other’s turf in the last few years. Last year, Amazon bought out Whole Foods and entered the supermarket and grocery segment; the company became a direct competitor of Wal-Mart with the move. At the same time, Wal-Mart formed a partnership with Japanese e-commerce firm, Rakuten Inc., bought out online retailer Jet.com Inc., thereby taking the challenge to Amazon.
According to the chairman of the retail consultancy Technopak Advisors Pvt., Arvind Singhal, Wal-Mart doesn’t have much of a choice if it wants to enter the Indian market. Wal-Mart has only two choices here – either the giant enters the market on its own or partners with an established brand. Entering the market on its own would mean building its presence from scratch and dealing with established competition. Joining with Flipkart is the more logical option.
After the US and China, India is the biggest online retail market waiting to be tapped. China has been a challenge for foreign investors basically because of the monopoly that Alibaba has in the Chinese market. Additionally, stringent regulations make it really difficult for foreign companies to enter that market.
Competition in the online retail segment has heated up in India as foreign companies begin to focus on the potential of this market. According to Kotak Institutional Equities, the Indian online retail market is expected to grow to at least $28 billion by 2020.
Jeff Bezos, the Amazon CEO has pledged a $5 billion investment in its operations in India. The Indian market is one of the online retail giant’s targets for growth in the coming years.
Chinese tech giant Alibaba has also entered the fray by supporting Paytm.
Wal-Mart teaming up with Flipkart will give strong competition to Amazon, feels Singhal. Additionally, the financial support that Flipkart would get from Wal-Mart would give it the push it needs to battle the increasingly stiff competition in the online retail sector as more and more companies enter the market.
SoftBank had originally backed e-commerce provider Snapdeal.com. The Japanese investor held almost one-third of the company’s stake. However, due to conflicts with the founders of the company, SoftBank withdrew its support and backed Flipkart instead. Softbank now has a $2.5 billion stake in Flipkart which it got through investing in the company as well as buying out early investors.