The biggest deal in the Indian E-commerce startup market was the Flipkart Walmart Deal in May 18. Walmart acquired 77% outstanding shares of Flipkart for an approximate value of USD 16,000 Mn. Walmart used this opportunity to enter the Indian market where it already had its global competitor, Amazon. In earlier years, Walmart attempted to penetrate the Indian market for 10 years but it did not manage to gain market share due to the tight FDI policies. Not so much experience with offline partners in India either it decided to take control of Flipkart because minority partners has not been good for them. Flipkart, on the other hand, was given this opportunity to use the cash infusion to smooth out its operations and gain access to international markets.
Walmart, the largest brick and mortar retailer in the world entering into deal with Flipkart received immediate market reaction. The Confederation of All India Traders said that the deal was nothing but a clear attempt to control and dominate the retail trade in India. The retailers clearly found the move very disadvantageous. The online sellers on Flipkart are nervous too because Walmart has a reputation of killing small businesses with ultra-low prices. The products bought would be at hyper competitive prices, which will cannibalize the market and make it difficult for other sellers to operate.
However, on the other hand, the battle between Amazon and Flipkart for leadership in the Indian market will grow more intense with Walmart buying into Flipkart. The initiatives by Walmart to partner with Kirana store owners and members will help to modernize the retail practices and adopt digital payment technologies. Also, it will not only create a vast infrastructure of supply chain but also a large number of jobs.
The Policy Prick
In Feb 19, the Indian government implemented several restrictive changes to its FDI Policy for e-commerce which also lead to rumors of Walmart exiting Flipkart. The new rules bar online marketplaces from entering into exclusive deals for selling products and having a single vendor supply more than 25% of the inventory. The rules also restrain online marketplaces from influencing prices in order to curb deep discounting.
These revised guidelines were designed to provide a level playing field to brick and mortar retailers by restricting deep discounts by e-commerce players. The biggest blow to the e-commerce companies is perhaps, the restriction on the sale of private labels on e-commerce platforms, which has hitherto provided better margins, helped fill product gaps and facilitated indirect control of inventory.
Despite the policy changes, Walmart remains extremely confident about the potential of the Indian market and Flipkart’s ability to lead the e-commerce space. It has taken a long term view of the opportunities and hence is unfazed with any short-term hurdles.
The deal definitely has pros and cons but it would give a big push to the e-commerce market—estimated to grow from a share of 2-2.5% of the retail market to about 30% in 10 years—and thereby act like a force multiplier for the start-up ecosystem.
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