Whither Swadeshi? Walmart takes over India’s paragon start-up Flipkart

New Delhi: Walmart Inc, on Wednesday, announced acquisition of 77% stake in Flipkart for about USD 16 billion (Rs 1.05 lakh crore) in the largest e-commerce deal which will give the US retailer access to the Indian online market that is estimated to grow to USD 200 billion within a decade.

The Walmart deal made IIT Delhi engineers, Sachin and Binny Bansal billionaires, who started Flipkart with a capital of Rs 4 lakh and went door-to-door to deliver books when they began operations in 2007. Sachin has exited the business by selling his entire stake of over 5% for around Rs 7,000 crore. Binny will retain his 5.5% stake and will be chairman of the company’s Board. The deal, under which Japan’s Softbank Corp Group are exiting, values Flipkart at USD 20.8 billion. Google parent Alphabet Inc is seen to be the potential investor who may get as much as 15%.

Flipkart leads the market

  • Flipkart has 34% market share while Amazon controls 27% of India’s online sales
  • Launched in 2007 as the ‘Amazon of India,’ Flipkart owns country’s largest online fashion retailers — Myntra and Jabong — both of which it had acquired
  •  Flipkart’s sales grew more than 50 per cent in the fiscal year ended March 31, 2018, to USD 4.6 billion, Walmart said

How the deal will be implemented

  • Binny will retain 5.5% stake and will be chairman of the company’s Board. Walmart’s Krish Iyer will be the CEO of the Bengaluru-based firm
  • Walmart and Flipkart will remain separate brands and the Indian company will have an independent Board, which will be revamped to give representation to the US firm
  • The deal is subject to regulatory approvals including CCI, and is expected to close later
    this year

Services, quality will improve…

  • Only 14% of over 400mn Indian Internet users shop online and the number is projected to rise to over 50 per cent by 2026
  • Walmart may bring in its own private labels via Flipkart to the Indian consumers on cheaper rates, adding to competitive pressures
  • Walmart runs 21 Best Price wholesale stores in the country that could potentially use those Best Price stores as pickup and delivery points