After the incessant frenzy in the media during the last few weeks on the impending acquisition of Flipkart by Walmart
, (with an occasional comment about Amazon also being in the fray), the deal was finally announced on late May 9.
How this acquisition will pan out both for Flipkart as well as Walmart will only be known in the next few years. However, there are many ramifications of this deal that will impact the larger ecommerce ecosystem in India, and further increase the competitive intensity in organised, modern retail.
Four of these interesting ramifications include:
Flipkart has for long been the poster boy of Indian ecommerce startups. An acquisition by Walmart is an endorsement of the kind of business Sachin and Binny Bansal have built because Walmart is the world’s biggest retailer and by most measures, one of the most successful ones even today. This acquisition is, therefore, more than just another major fund-raising round or an exit for early backers of Flipkart, and should inspire many other Indian entrepreneurs to dream really, really big. At the same time, all investors in Flipkart from the earliest ones right through some of the later ones — Softbank and eBay — have made highly profitable exits. This should further encourage more Indian and international investors to look at and invest more in India’s ecommerce businesses, giving the overall Indian ecommerce ecosystem a further fillip.
India’s etail business is still just about 2% of the $800-billion merchandise retail sector of India (in 2017). The fact that Walmart has chosen to invest over $16 billion and valued Flipkart at over $20 billion gives a sense of the tremendous potential of e-retail (and ecommerce) in India as perceived outside India. This should lead to a further upwards rerating of value of several existing retail businesses in India (both brick and mortar, as well as pure-play etailers).
Competition in Indian retail will further intensify since a Walmart–Flipkart partnership will challenge not only Amazon and other e-retailers, but also most large physical brick and mortar retailers that include Reliance, Future Group, Tata Group, D’Mart (Avenue Supermarkets), Aditya Birla Group, Landmark etc. Overall, this increase in competition would not only be good for Indian consumers, but also for the larger retail ecosystem in the country. The fight for a share of consumer spending is now likely to shift towards the food and grocery segment, keeping in view that it is by far the largest segment of overall consumer spending on merchandise. This should augur well for the agriculture and for the food processing sectors.
And finally, this deal (and the humungous size of the deal) should make Government of India take note, yet once again, of the tremendous FDI (Foreign Direct Investment) potential India offers directly in retail sector (and then also in the larger retail ecosystem that includes cold chains, food processing, logistics, warehousing, etc) and review its completely dysfunctional FDI policy in retail per se to make it more pragmatic. The government should remove the distinction between various formats of retail (brick and mortar, etail, cash and carry, single brand/multibrand etc) and have a holistic policy that attracts both domestic as well as international investment without too many riders and ridiculous restrictions.
Arvind Singhal is chairman and managing director of Technopak, a consulting firm.
First Published: May 10, 2018 5:36 PM IST