Without Walmart, Amazon would have won in one to two years but the game will now expand and Flipkart will be able to compete equally.

Walmart is paying too much for too little Is the Flipkart deal worth it
Atom Ecommerce Tuesday, May 08, 2018 - 19:27

It is a done deal. In what is the largest acquisition of a business by Walmart, the US-based retail giant is acquiring nearly 77% stake in India’s largest ecommerce player Flipkart.

The deal, which was announced on Wednesday, will also see Google’s parent Alphabet picking up roughly 15% stake in the online marketplace. Walmart will be buying Flipkart for a whopping $16 billion, valuing the Bengaluru-based e-tailer at anywhere between $18 billion-$20 billion.

The deal, also the largest in the Indian ecommerce space, has made everyone sit up and take notice, as it is expected to be a gamechanger for the ecommerce ecosystem in the country. Flipkart has been fiercely competing against Amazon for years now. While Flipkart claims to be ahead, given the US-based ecommerce giant’s commitment to India, financially as well, it wouldn’t be long before Amazon raced ahead of it.

For Walmart, this seems to be its big bet to make a second splash in the Indian market, this time through ecommerce, after failing in its first attempt.

But fundamentally, how will the deal really change the face of the Indian ecommerce industry? Should Amazon feel threatened? What happens to the other players such as Paytm Mall and Snapdeal?

According to Sanjay Jesrani of North Ventures, it’s a big move by Walmart to enter the Indian ecommerce market. This move, he says, will accelerate the growth of ecommerce in India.

“Even if you look at listed companies in India such as ICICI or Infosys, 60-70% of these companies are owned by foreign investors. From that perspective, even for startups to have a serious well-funded player such as Walmart coming into the market will only mean that the market will deepen and widen much faster. With it in the market, Amazon will also build good counter-ways to capture the market. This will ultimately be good for the consumers and for the ecosystem,” he adds.

Gagan Goyal of India Quotient agrees. He says that the development fundamentally will support the ecommerce industry in a much better way and Flipkart can benefit from experienced players like Walmart in areas such as supply chain, logistics.

For K Vaitheeswaran, author of Failing to Succeed, while Walmart participating in the Indian retail market is a positive sign, he suggests that they should focus on offline which is their strength and not online. They might have plans of building a strong digital business and then integrate it to create an omni-channel. While that is a good idea, Vaitheeswaran says that purely online may not be a good bet for Walmart.

His contention is that for a country where ecommerce is less than 1% of the Indian retail market, half of it has already gone to Amazon, leaving 0.5% to Walmart-Flipkart. “When you can target the 99%, which is your strength, why would you spend so much for 0.5% of the market. The arithmetic beats me,” he adds.

Amazon has built a strong presence in India with just about $5 billion dollars. Vaitheeswaran says that Walmart too can build a strong business on its own for that amount and doesn’t need to shell out a whopping $16 billion dollars.

However, Sanjay takes the example of Facebook buying Instagram for a billion dollars. It seemed like a huge amount at the time for a company that had no revenue and 30 million users.  Today, Instagram is more popular than Facebook and Snapchat and is on its way to becoming a multi-billion-dollar business.

Walmart, Sanjay says, is actually much behind the curve in terms of an online presence. For a large offline retailer like Walmart to actually build its capacity online organically, would take them far longer.

“Right now, for them, it’s a trade-off between getting ready-made muscle in the ecommerce market, to having millions of customers. Walmart already has a brand presence. A large part of what they are paying for, is a slice of the Indian ecommerce market, where Flipkart’s market share is virtually over 40% of a $38.5 billion market at present,” he adds.

It is always a question of whether you should build or buy or what combination works best. In Sanjay’s opinion, in the longer run, these are reflections of what global players are considering Indian market’s potential to be and with the kind of growth the Indian market is seeing, no other market may possibly give them that rate of growth.

But Vaitheeswaran feels that Walmart should invest $4-$5 billion and go on to create a Walmart.com and create a solid brand to fight Amazon, Alibaba, SoftBank and others. “I think they will be able to build a much solid business at half the price. My fundamental problem is that I think they are paying too much for too little,” he adds.

On the contrary, Sanjay says that a lot of this play happens based on what they (Walmart) consider as the gatekeeping function of a very large high potential growth market. It comes from there.

Gagan also adds that this deal is good for investors. “Flipkart was bleeding for them. They will finally get their returns. The startup ecosystem in India too, finally has a case study that a startup got some value and that too from a legit strategic company,” he adds.

Vaitheeswaran agrees on this point. The investors and founders will obviously make money. But the true benefit for Flipkart will only be known post the deal, depending on what Walmart’s plans for the ecommerce giant are.

Will this change the face of the ecommerce market?

If Walmart continues doing what Flipkart has anyway been doing, then nothing will change, according to Vaitheeswaran.

“Flipkart has been competing with Amazon and losing. They were once a big no 1 and can still claim they're ahead, but Flipkart has lost the battle to Amazon, everyone knows that including Flipkart. If Walmart comes in and does more of what Flipkart is doing, then we all know if you do the same thing, you’ll get the same result, not much will change. Amazon will continue to go ahead,” he adds.

To get a different outcome, Walmart needs to come in and do something different. Some people say it might make a large offline acquisition as well, but that won’t be easy given the FDI rules.

“The entire approach of paying $16 billion dollars for an Indian ecommerce company that is constantly falling behind Amazon completely beats me,” he adds.

On this point, Sanjay also says that this deal may not make much of a difference to Amazon. Amazon has a much bigger play and there is probably a space in the Indian market for two players and even a third at some point, he adds.

According to Gagan, with Flipkart getting a lot more financial support, it will be more of an even contest now, unlike earlier. “Without Walmart, Amazon would have won in 1-2 years. The game will now expand and Flipkart will compete equally. We as a country believe in competition. If there is a level playing field, everyone will benefit. Amazon is big enough to compete,” he adds.

However, there are conflicting views in the market. Some say Amazon is threatened, given the fact that it tried its best to counter the offer made by Walmart. But how the game will really pan out depends on what Walmart has in store for Flipkart and of course, what the other large players such as Alibaba-backed Paytm Mall have planned for the Indian market.

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