US giants in tug-of-war for online retailer Flipkart
In a bid to capture the e-commerce market, Amazon and Walmart are desperate to link up with India's leading internet retailer
In a bid to capture the US$38.5 billion Indian e-commerce market, three major online retailers – Amazon, Flipkart and Walmart – are trying to outdo one another by buying out the competition. Even as Walmart is in talks to buy a majority stake in Flipkart, India’s largest online retailer, Amazon has reportedly jumped in and made a rival bid for it.
Amazon did not deny the claim, but said it did not comment on rumors and speculation. Meanwhile, Flipkart did not respond to an e-mail sent by Asia Times.
The value of the Indian e-commerce market is expected to grow to $200 billion by 2026 from the current $38.5 billion, according to the Indian Brand Equity Foundation. After 11 years in the game, Flipkart holds an estimated half of the Indian online-retail market, while Amazon, which is just four-years-old in India, already has a 33% market share.
According to Hari Balasubramanian, a mentor and investor in the e-commerce space, it’s just a matter of time before Flipkart gets swallowed by one of these retail giants.
“Flipkart has lost too many good people from the organization and now lags in terms of innovation. While Amazon is miles ahead in innovation, Walmart will bring in a different level of expertise to the Flipkart brand,” Balasubramanian said.
But whoever Flipkart decides to go with, the battle between the two US-based retail conglomerates is expected to heat up in India in the coming years.
Investors and analysts also see this as an opportunity for local e-commerce companies to grow as integrating two organizations with very different cultures will take time. “If the deal with Amazon goes through, it will create an opportunity for others such as Paytm to bounce back,” Balasubramanian said.
Walmart has been trying to find a route into India, but its attempts have floundered over India’s foreign-direct-investment rules, which ban FDI in multi-brand retail. Five years ago, the joint venture between Bharti Enterprise and Walmart, Bharti-Walmart, ended in tears.
Talk of Walmart buying a stake in Flipkart has been going around since late 2016. Walmart had to step back when Flipkart went on to raise $3 billion separately from Tencent, eBay, Microsoft and SoftBank. Talks between Walmart and Flipkart have apparently revived now, with Walmart asking for a 55% stake in Flipkart. If the deal goes through it would increase Flipkart’s value to $20 billion.
With Amazon’s entry in 2013, the Indian e-commerce market has become extremely competitive, with deep discounts, festival offers and exclusive deals becoming the norm.
All the players have been burning a significant amount of cash, with a focus on building market share and expanding gross merchandise value. According to consulting-firm Redseer, Indian e-commerce gross merchandise hit annualized sales of $20 billion in the last two quarters of 2017.
Since its inception, Flipkart has raised more than $6 billion from an array of investors including Tiger Global Management, Accel Partners, Naspers, IDG Ventures and Tencent, among others.
In August last year, Flipkart’s attempt to buy Snapdeal failed because of a disagreement over its valuation. Flipkart has acquired fashion e-tailers Myntra and Jabong, and also owns eBay India and mobile payments firm PhonePe.
“For Amazon, $20 billion is going to be too expensive because they have achieved a lot with an investment of mere $3 billion to $4 billion,” said Satish Meena, senior forecast analyst at US-based research and advisory firm Forrester Research. “I think they will be able to create more value with that amount than buying Flipkart.”
According to Forrester Research, even after raising $1.4 billion from Tencent, eBay and Microsoft in April 2017, and $2.5 billion from Softbank in August 2017 (including $1 billion in secondary investment),
Flipkart faced stiff competition from Amazon in the smartphone segment and grocery business. Moreover, Amazon Prime targeted the high spenders, pushing Flipkart on to the back foot.
“The deal between Amazon and Flipkart is the least probable. But if that happens, it will make things difficult for Walmart. They will have to go back [to the drawing board] to figure out how to enter this market. So [Walmart] will try to close this deal at any cost,” Meena predicted.
“The Flipkart-Amazon deal will create a monopolistic situation. But the Walmart-Flipkart will lead to another foreign player in the market. In either case, it will impact the smaller players like Shopclues and Snapdeal, who may find it difficult to raise funds and have to focus on low-asset-based models,” he concluded.
The writers are part of the 101reporters network