Flipkart’s new tie-up with Indian logistics giant Adani Group will see the creation of a massive fulfillment center in Mumbai, a move that would expand Walmart’s horizons in India since its acquisition in 2018 of a majority stake in the e-commerce platform.
The partnership would pave the way for a 534,000-square-foot fulfillment center, with the Adani business building the center and leasing it to Flipkart, the companies said in a statement Monday.
“At the Flipkart Group, we are focused on ensuring that our customers get access to a wide range of products made available by sellers across the country as we continuously innovate to drive greater affordability,” Flipkart’s chief executive officer Kalyan Krishnamurthy, said in the statement. “Our logistics network and technology stack are instrumental in making this a reality.”
“This broad-ranging partnership across our logistics and data center businesses is a unique business model, and we see this as a great opportunity to serve Flipkart’s physical as well as digital infrastructure needs,” Karan Adani, CEO of Adani Ports and Special Economic Zone, said in the statement. “Flipkart has been instrumental in defining e-commerce adoption in India, both through the value it creates and its constant technological innovation to serve its consumers.”
Walmart acquired its 77 percent stake in Flipkart for roughly $16 billion, reflecting the sort of strategy available to retailers outside India looking to build a presence there. India’s foreign direct investment regulations restrict foreign retailers from opening stores catering directly to consumers, as a means to protect small neighborhood businesses in the country. That’s meant Walmart’s presence there so far has also been built around its “Best Price Modern Wholesale” stores that serve independent retailers, small businesses and neighborhood stores.
“It seems that to focus on the small companies, the MSME [Micro, Small and Medium Enterprises], they had a couple of choices,” said Sayan Chatterjee, professor at the Weatherhead School of Management at Case Western Reserve University.
“One is to have them come to the store, these cash-and-carry stores, and then pick up whatever they need. But the other is to ship whatever they need directly to these small enterprises. For that, they need fulfillment centers.
“What it tells me is Walmart has essentially [shifted] its strategy to sell b-to-b in India and not try to compete with b-to-c,” Chatterjee said, referring to the business-to-business and business-to-consumer models. “And they’re trying to go beyond the cash and carry model, to essentially sending out stuff to small business customers through their fulfillment centers.”
The process of building out such a large-scale construction project also requires the sort of partnership that Flipkart has pursued with the Adani Group, founded by business mogul Gautam Adani.
Building projects that require navigating permissions and licenses require the knowledge and connections of well-established local businesses, said Anup Srivastava, Canada research chair at the Haskayne School of Business at University of Calgary.
“Any local government official can stall the whole process, citing historical rules which can go as far back as the British era,” he said. “You need a party that’s capable of managing this process. And the Adanis are experts at infrastructure projects, both in terms of implementing them as well as managing them.”
Walmart has sought to invest in India as the country’s e-commerce market is projected to expand to roughly $90 billion in the next five years, Flipkart’s CEO Krishnamurthy said at Walmart’s investment meeting in February. Roughly half the country’s 1.4 billion population is online, he said at the time.
Walmart observers view its moves there as part of its competitive strategy against other retailers.
“Clearly it’s a shot across the bow to Amazon for them to build this Amazon-style, you know, in terms of its scale, this type of fulfillment center,” said Garrett Nelson at CFRA research.
“That’s their big concern longer term, competing with an Amazon or a similarly large e-commerce retailer.”