Flipkart’s operations appear to have pulled down the overall financial performance figures for its parent company Walmart. The company has clubbed all its international operations into a separate entity Walmart International. These include all the offline and online retail stores operations. The decline in profits for the second quarter of 2019 ending June 30 resulted in a decline in profits by 29.6% year-on-year.
Walmart is locked in a battle with its US rival Amazon for the Indian e-commerce market after having spent $16 billion to acquire a 77% stake in Flipkart, founded by two Indian entrepreneurs, Sachin and Binny Bansal (not related to each other).
Executive vice-president and chief financial officer of Walmart Inc., Brett Briggs however said, “Walmart International continued to make progress on managing costs and delivered 36 basis points of expense leverage in the quarter. However, operating income declined 27.3 percent in constant currency and 29.6 percent on a reported basis due primarily to the expected dilution from Flipkart as well as the overall gross margin pressure”.
Walmart had already conceded earlier that its first quarter revenues went down close to 38% primarily due to Flipkart.
Quoting the company’s executives, again, they are citing the example of Myntra and the impressive sales it clocked in the recently concluded ‘End of Reason’ sale and said the ecosystem they are building around Flipkart is quite robust and will start yielding results soon.
There was also the mention of the tie-up Flipkart has entered into with the local retail outlets to take care of the last mile delivery. It was claimed that over 70% of the 8.5 million packages were delivered to the customers via this kirana store network in partnership with Flipkart.
Walmart also referred to the Flipkart co-branded credit card as well as its digital payment channel PhonePe which are receiving commendable support from the customers.
Meanwhile, Walmart’s home operations are doing much better, with the offline retail stores posting a solid upward curve for five consecutive quarters. Subsidiary Sam’s Club too recorded impressive profitability figures.
The company’s interest outgo also contributed to pulling down the profits. The company had issued bonds to raise the funds to buy Flipkart.
Walmart is betting big next on China. Foreign players are not permitted in that country in online retail. Walmart is making an entry through delivery and logistics with the Walmart Daojia delivery app with an investment of $1.2 billion.