While Walmart has been the rumored — and foremost — contender to take a large stake in Flipkart for months, it now appears Amazon India might be a strong suitor as well.
India is one of the world’s fastest-growing retail markets and is seen as key in the rush for global consumer domination, especially since China, the other vital and rapidly growing developing market, is dominated by Alibaba.
Flipkart has expanded rapidly in India, which has a population that tops one billion and a fast-growing segment of Internet-savvy shoppers. But the company has also had to race to stay ahead of Amazon India.
E-commerce in India is estimated to have grown to $15 billion, with apparel and electronics as the biggest sellers. It is one of the fastest-growing and most disruptive segments of country’s $700 billion retail market.
Discount sales, price wars, new products, private labels have all changed the game for a customer base that has mostly worked with cash-on-delivery models, led by Flipkart, launched in 2007. Although the firm has kept its lead, Flipkart’s valuation saw a sharp drop from $15.2 billion in 2015 to $11.6 billion in April 2017. An additional round of funding of $4 billion last year, led by Chinese internet conglomerate Tencent, has helped the company hold its lead.
Other investors in the company include SoftBank (Japan), and U.S. corporations eBay and Microsoft.
Meanwhile, Amazon India has been working hard — and fast — to get the number-one spot since launching in 2013, with a promised investment of $5 billion by chief executive officer Jeff Bezos.
It has not been an empty threat and the race has been close.
If Amazon did take a stake in Flipkart, it could reset the retail marketplace in the coming year.
Equally, analysts believe Walmart cannot afford to lose the Indian market and that an investment in Flipkart could ease its painful entry into the sector, which has been slowed by legislation limiting multibrand retailers. Walmart has been pushing to establish a real foothold in India for more than nine years, weathering a failed venture with Bharti Enterprises and limited market engagement with a cash-and-carry format. Walmart has just 20 stores in India at this time, with plans to expand to 50 by 2020, all in the cash-and-carry format.
Analysts estimate Walmart would pay roughly $8 billion for a 40 percent share in Flipkart, valuing the company at $20 billion. (Amazon, on the other hand is rumored to want to buy control of the company).
“We are intentionally focused on investing in markets, channels and formats that position us to win,” said Walmart’s chief executive officer Doug McMillon in Walmart’s 2017 annual report. The growth plan also noted that the company would focus on growth through the e-commerce route.
While Walmart continues to look at the Chinese market, through the stake it bought in jd.com in 2016 – an initial 5 percent, stepped up to 12 percent — the stake in Flipkart would give it a much stronger positioning in the Indian market than jd.com has brought to it in China, according to industry observers.
Key Flipkart investors such as Tiger Global Management, Accel Partners, Naspers and IDG Ventures are expected to sell their stakes if a Walmart deal comes to fruition.
However, analysts note that this leadership in Indian e-tail — either for Amazon, or Walmart — would not be without its risks.
Flipkart has been racing ahead in terms of growth, offering more than 30 million products across 70 categories. But at the end of the financial year in 2017 (March 31), the company had $3 billion in revenue and $1.35 billion in losses.
While analysts believe that Amazon could build even more e-tail might with a Flipkart transaction, a deal with Walmart would change physical and online retail in the country, giving the discount retail giant the liberty to invest in physical stores while supporting Flipkart’s ambitions to enter the brick-and-mortar space.
Last year Myntra, a leading fashion e-tailer that was acquired by Flipkart in 2014 for an estimated $310 million, partnered with Spanish brand Mango to open its first brick-and-mortar stores in India. Twenty-five more such stores are expected to open in the next five years.
“Launching the first Mango store in New Delhi is a huge step in the direction of building a robust omnichannel presence for the brand,” said Ananth Narayanan, chief executive officer of Myntra & Jabong. Flipkart also acquired Jabong in 2016, giving it a fillip in the apparel space.
It is still too early to tell which way Flipkart goes, but a deal with either Walmart or Amazon could help reshape retail not just in India, but in the world, where the giants of the industry are vying for consumer control.