Walmart - Flipkart Deal

What is the issue?

• U.S. retail giant Walmart planning to acquire India’s leading e-commerce firm Flipkart for a whooping sum of $16-billion.
• This is likely bolster the position of Flipkart in the ongoing neck-and-neck contest with Amazon in the Indian e-commerce market.

What is deal about?

• The deal which is expected to be sealed fully by December will lead to an immediate fund infusion of $ 2 billion into Flipkart.
• Flipkart’s Gain – As e-commerce market is dominated by thin margins and is worsening due to steep discounting policies, big funds are needed to sustain.
• Hence, the deal (new funds) will help Flipkart sustain its aggressive pricing against Amazon for now – thereby help in retaining competitiveness.
• Walmart brings with it experience in areas of traditional retail such as logistics, sourcing of goods and managing a physical supply chain.
• Significantly, while Flipkart lacks supply chain expertise currently, it is said to be a major strength of its competitor “Amazon”.
• Walmart’s Gain - Flipkart’s prowess in technology and customer insights would complement Walmart’s presence in India 
• Notably, Flikart has presence in 19 cities across nine states and runs 21 Best Price cash-and-carry stores and one fulfilment centre.
• Also, the deal is not just limited to just Flipkart, but also includes its sister concerns, which will now add to Walmart’s diverse portfolio.
• Notably, the sister concerns are Digital Payment Firm “PhonePe”, Fashion Marketers “e-tailers, Myntra and Jabong” and logistics arm “Ekart”.
• Almost 70% of the e-market share in the fashion is currently held by Flipkart Group and Ekart has a presence in almost 800 cities (5 lakh deliveries/day).

What is the market scenario?

• India’s e-commerce market is projected to grow 4 times faster than total retail over the next five years.
• Notably, consolidated retail segment is projected to grow only 9% between 2018 and 2023, whereas e-commerce segment is expected to grow by 36%.
• The e-commerce projections are based on increasing Smartphone penetration in India, which is estimated to be 58% by 2020, compared with 30% in 2017.
• India’s e-retail market is still in its nascence, clocking just about $ 27 billion sales in 2017-18, which is negligible in comparison to China’s $1.11 trillion. 
• The entry of a promoter with deep pockets into the e-commerce space will accelerate the push towards e-tail adoption in the country.

What are the likely negative implications for small time retail?

• This growth of online retail is also expected to hit the unorganised retailers, who currently constitute about 90% of the $650-billion retail sector in India.
• However, Walmart has asserted that it would support small businesses through direct procurement as it expands in India.
• Additionally, it also pledged that it would provide for increased opportunities for exports by establishing overseas supply chains.  
• Walmart has also said that it will partner with small shop owners and help in modernising their retail practices and enable them adopt digital technologies.

Source: Indian Express