According to the news report by CNN Money, Walmart has agreed to buy Indian online retailer Flipkart, Amazon’s biggest rival in the e-commerce space in the country. Walmart announced this week that it was acquiring a 77% stake in Flipkart for $16 billion.
Flipkart is India’s most valuable startup and has held its own against Amazon in the retail giant’s biggest overseas market. According to market reports, in an effort to prevent this deal from going through, Amazon had made a counter offer to Walmart’s original bid for the Indian e-commerce startup. Amazon had offered to buy 60% of Flipkart’s stake with a $2 billion break-up fee thrown in to the deal.
However, this bid failed, and Walmart is now confirmed to be buying the country’s number one online retail company. Despite Amazon having lost this battle, the war for the Indian online retail market has just begun.
According to an associate dean and marketing professor at the renowned Indian School of Business, Siddharth Shekhar Singh, India is just too important a market to be ignored, since the online shopping sector in the country is expected to grow to at least four times its current size in the next few years. Singh feels that the competition between the two retail giants in only going to intensify in the country.
Jeff Bezos, the richest man in the world as well as the founder and Chief Executive Officer of Amazon.com Inc., has already publically pledged his commitment to India. He has promised a $5 billion investment to grow Amazon’s business in the subcontinent.
According to data from the Indian Government, the online retail giant has already invested $3 billion into its main subsidiary in the country. And local media reported that Amazon invested another $400 million in its Indian operations as recently as April this year.
BMI Research consumer analyst Nainika Singh told CNN Money that Amazon’s investments are further proof of the company’s focus on the Indian market. BMI Research’s data shows that the Indian market is expected to grow from its current valuation of $48 billion to more than $80 billion by the year 2021. This pegs the growth rate at 19% per year. And it won’t stop there. Morgan Stanley has predicted that the Indian e-commerce segment will be worth upwards of $200 billion by 2026.
One of the main areas of contention between the two retail giants will be the groceries segment in the country. Amazon has already started selling groceries online after it secured the necessary approvals from the Indian government in 2017.
Flipkart is looking to expand into that segment of the online market, and Walmart is the perfect partner to help the company in that area. Singh said that this is where the partnership between Flipkart and Walmart will be especially beneficial; Walmart has the expertise to help develop Flipkart’s grocery business. However, it will not be easy since Amazon is doing everything it can to consolidate its position in this segment of the e-commerce market.
For Walmart, India is going to be a challenge. The world’s biggest retailer has paid a lot for this deal and it has taken a sizeable amount out of its cash reserves. The last big e-commerce purchase Walmart made was Jet.com in 2016. The Flipkart deal is five times more expensive for the retailer. And the spending isn’t expected to stop here.
Walmart will also have to commit even more cash to bolster supply chains as well as logistics as part of its long-term strategy to compete with Amazon. Walmart’s shares dropped by 4% on the back of this announcement.