Walmart has picked up 77% stake in Flipkart for for USD 16 billion and valuing the Bengaluru based Flipkart at approximately USD 18 to 20 billion. This is not the first e-commerce deal for Walmart that has already acquired Jet.com in 2016.
The deal with Jet was incredible for Jet because it gave access to Walmart’s delivery capability in the US because everyone in US lives approximately 10 miles from a Walmart. This provided Jet with speed of delivery and last mile connectivity.
According to Crisil Organised retail to grab 10% market share in next 2 years on new FDI rules.
Walmart’s own India expansion plans of upto 20 new sites and add 50 new stores by 2022 to take the total store count to 70 ties in neatly with this strategy as it will help Walmart provide the last mile connectivity as it did with Jet.
The rule changes for FDI in retail in India and probable relaxation in sourcing norms could also be the catalyst for such a valuation for Filpkart by Walmart.
The future business potential notwithstanding, the break even on this deal will take years to happen. The other challenge is the increasingly nimble local retailer in India who has survived the first onslaught of organised retail. The capability of the local stores to take on the might of the large format stores was clearly underestimated.
The other challenge that Walmart faces is with the organised brick and mortar retail in the homegrown area such as Future Group and D-Mart.
One thing that does come to the fore is the commitment of Walmart to the retail scene in India. Flipkart helps them spread their wings into places where they need not have a physical store. For Flipkart, it gives a way out for early investors and access to a war chest to take on Amazon. Walmart definitely sees Amazon as a threat inspite of the difference in their sizes. Amazon has suddenly taken the fight to Walmart with its purchase of Whole Foods and experimenting with brick and mortar.
We will need to wait and watch the sector as a whole because regulatory changes are surely going to surely shake things up and we need to factor in those before we call the deal truly successful.