ANALYSIS
Acquisition | Walmart-Flipkart
So, food and groceries— something that Flipkart had unsuccessfully tried its hands at earlier— would be one of the main focus areas. Amazon India has its own Amazon Pantry and Amazon Now( wherein it partners with local retail chains in Bengaluru), and there are a number of relatively smalltime players in a number of cities that supply vegetable and groceries, including BigBasket and Grofers.
As Amazon battles with the Flipkart-Jabong-Myntra group in fashion, it will now have to grapple with Walmart in food and groceries, where the latter holds sway everywhere, particularly in the US. Amazon is already fighting it out with Walmart in the US with its recent Whole Foods Market venture. For its part, Walmart has been concentrating more on developing markets for a share of the grocery pie. Only last month, it gave up control of its UK grocery chain, Asda, merging it with British rival J Sainsbury Plc. Walmart will retain a minority 42 per cent stake in that combined company.
In the Flipkart ecosystem, Walmart was also said to have been particularly interested in the Myntra and Jabong fashion-centric portals. Walmart has been trying to enter the fashion e-space that is brutally dominated by Amazon in the US, but not so much in India. Walmart has already acquired Bonobos and ModCloth, and partnered with department-store chain Lord & Taylor.
The e-commerce war will spill over into the brick-and-mortar theatre too. As of now, the e-commerce is far to minuscule compared to the over retail marketspace of about $ 750 billion, most of which( estimated to be 90 per cent) falls in the unorganised sector. With the most-likely Flipkart re-entry into the food-grocery business( backed by Walmart’ s own expertise in the area) there is bound to be a rethinking of strategies on part of retail chains like Reliance, Future Group, Tata Group, D’ Mart( Avenue Supermarkets), Aditya Birla Group, Landmark, Metro( Germany) and Shoppers Stop. The food-grocery segment is said to be the largest in terms of overall consumer spending. The cascading effect of this is likely to be felt first in the logistics and food processing businesses.
A LOSS-MAKING INHERITANCE
Most of the post-acquisition debate has hovered over Walmart’ s decision to take over a company that has been bleeding. Flipkart’ s share of the Indian e-commerce market grew from 31.5 per cent to 35.7 per cent between 2016 and 2017, according to Bloomberg Intelligence and Euromonitor Passport. Over the same period, Amazon’ s share grew from 24.5 per cent to 27.7 per cent. Both grew at the expense of smaller players, that started getting wiped out one by one.
Flipkart’ s revenues grew 29 per cent last year to $ 3 billion, but much slower than the growth of 50 per cent in 2016. The net losses at the same time grew by an unnerving 68 per cent to $ 1.3 billion. In other words, Walmart bid $ 16 billion and valued the unprofitable Flipkart at about $ 20.8 billion, at roughly seven times the sales figures of last year. To turn Flipkart profitable would be quite a task.
The new board at Flipkart will have eight members, including five directors appointed by Walmart. Walmart founder Sam Walton’ s grandson, Steuart Walton, may join the board of directors. Photo shows a team in discussion at the old Flipkart office. Pic courtesy: Flipkart
44 | FIBRE2FASHION JUNE 2018