Walmart is pulling no punches to stake a claim on India’s rapidly growing e-commerce business as it attempts to find a competitive advantage over Amazon.
As Amazon’s star grows ever higher, Walmart is ramping up its acquisition strategy with an eye to global markets. Earlier this month, the company purchased a 77 percent stake in the Indian e-commerce marketplace Flipkart, a move that not only helps expand its global reach but allows the company to build upon Flipkart’s existing resources and infrastructure.
“Walmart is pumping a lot into their international growth in markets where Amazon is not fully as saturated as it is in the U.S.,” said Justin Halle, sales director at Brandview. “While you can’t underestimate the importance of Amazon in the U.S., it’s not the same internationally.”
Will Walmart’s Flipkart venture prove successful with Amazon nipping at its heels, and markets like Alibaba and Tmall continuing to thrive in Asia? As the battle of the e-commerce giants intensifies, here’s what you should know about the race for India.
Online retail in India is an increasingly hot commodity
According to the India Brand Equity Foundation, e-commerce in India is expected to swell to $200 billion by 2026, up from a forecast $50 billion by the end of 2018. This growth can largely be attributed to technological advancements in developing regions of the country. As a result, IBEF anticipates that by 2021, 59 percent of the population will have internet access, compared to 26 percent in 2016. With more and more people getting online, retailers like Amazon and Walmart have a growing audience of shoppers.
In terms of scale and growth potential, Flipkart is to Walmart as the Whole Foods acquisition was to Amazon
When Amazon purchased Whole Foods in August 2017, it was a concerted effort to enhance its grocery retail business. William Susman, analyst at Threadstone Investors, said Walmart’s acquisition of Flipkart, considering benefits like customer acquisition and growth potential, is on par with the Amazon and Whole Foods deal. Flipkart has gained significant traction in areas like fashion and electronics — significant focuses for Walmart as well, as indicated by its recent launch of four new private-label apparel companies — and received a $2.5 billion investment from Japanese technology company Softbank in 2017.
“Obviously, the Indian market, given its sheer size and demographic tailwinds, is, in and of itself, highly desirable, but this acquisition is much more than just a regional land-grab play,” Susman said. “Flipkart gives Walmart a new, robust supply-chain lever, as well an additional customer-acquisition funnel, and a powerful outlet for the company’s various brands, both in-house and third-party.”
Amazon and Walmart now both have a $16 billion stake in India, but that doesn’t mean they’re on equal footing
When Walmart acquired its 77 percent share of Flipkart, it claimed $16 billion of the business — the same amount that Amazon India is currently valued at, according to a report by Citi Research. However, Amazon has had to make significant investments in recent years to build fulfillment centers, stations and sorting facilities throughout the country, a significant cost for the company.
For Walmart, purchasing a controlling stake in Flipkart meant also having access to its existing resources, such as fulfillment centers and shipping. “This gives them the opportunity to expand to a market without heavily investing in the infrastructure with a large market like Asia,” said Halle.
In fight for India, Amazon and Walmart are trying to avoid mistakes made in the Chinese market
Amazon founder and CEO Jeff Bezos has been open about oversights the company made in trying to gain e-commerce share in China, a lucrative yet competitive market with prominent major players like Alibaba and Tmall.
In the Citi Research report, the researchers noted that Bezos “learned a key lesson in China that he does not plan to repeat in India — not being aggressive enough, and not investing enough.” Though Bezos recently invested in Indian infrastructure, Walmart’s Flipkart gain means Amazon may need to up its ante.