Walmart Stores Inc. is in advanced discussions to invest as much as $1 billion into India’s Flipkart Online Services Pvt. Ltd in exchange for a minority stake in the Bengaluru-based e-commerce company, according to several reports.
The move is being widely seen as a bid to take on Amazon, which in June had announced an additional investment of $3 billion in its India arm, taking its total investment in Amazon India to $5 billion.
Walmart has been in India for over a decade now. It owns and operates 21 Best Price Modern Wholesale stores offering nearly 5,000 items in the cash and carry wholesale format.
In the US, Walmart has been hit hard by competition from online shopping sites, particularly Amazon, and the company has announced store closures and job cuts multiple times over the past year.
According to an Economic Times report: In 2015, Amazon’s revenue grew by 20 per cent to $107 billion ($99 billion from online sales, the rest from Amazon Web Services) while Walmart’s sales declined by 0.7 per cent to $482 billion. In the second quarter of fiscal 2017, Walmart’s revenues rose 0.5 per cent to $120.9 billion while Amazon reported sales of $30.40 billion, up 31.1 per cent from the year-ago quarter.
If the deal between Walmart and Flipkart materialises, the war between Amazon and Walmart would spill over into India, the fastest growing market for the Jeff Bezos founded company.
For Flipkart, the talks have come at an opportune time. The e-commerce behemoth, which is currently at No.1 slot in India, is struggling to maintain its leadership position with Amazon closing the gap fast.
Amazon is expected to clock $10 billion in gross merchandise sales in the next few years, faster than it did so in markets like Germany, Japan and the UK.
Adding to Flipkart’s woes is the fact that in August this year, mutual fund Morgan Stanley slashed Flipkart’s valuation for the third time in a little over six months. Mutual fund T Rowe Price followed by marking down the its stake in Flipkart by 15 per cent.
The latest exercise reinforces the fact that Flipkart’s value has eroded in the past few months from $15.2 billion, down to a little over $9 billion.
According to a report in Bloomberg, a Walmart-Flipkart tie up may prompt moves from other competitors in the India market. Alibaba has been funding Snapdeal.com, the third-largest competitor in Indian e-commerce, and has long considered the country a prime expansion opportunity as it seeks to generate half its revenue from outside China.
However, if Amazon and Walmart both stepping up their investments, Alibaba may have to consider doing the same, either with Snapdeal or on its own, the report says.