If it weren’t for that darn e-commerce rule change, Walmart Inc might just have squeaked through the Flipkart test.
In less than a year since it acquired Flipkart for $16 billion, its largest-ever deal, Walmart has faced a multitude of challenges in India, where it has been doing business for close to a decade now.
Tuesday's better-than-expected holiday quarter sales and profit, Walmart has proved its mettle in the US, its top market, but the results also highlighted the difficulty faced by the world’s largest retailer in getting a real shot at India’s booming e-commerce market.
"In terms of the regulatory environment, we were disappointed in the recent change in law and the lack of consultation," Walmart president and CEO Doug McMillon said on an earnings call Tuesday. McMillon added that Walmart plans to work with the Indian government on “pro-growth” initiatives.
government tightened norms that came into effect on February 1, prohibiting foreign companies like Walmart and Amazon from selling their own products through their affiliated entities in the country—where both retailers have placed big bets—the potential Flipkart impact was a key discussion point on the call.
So far, online retail in India has grown mostly on the back of deep discounts. With the government capping discounts, the
incumbents may now struggle to even retain existing customers.
The Bentonville, Arkansas-based company projects its consolidated operating income this year will decline because of the Flipkart acquisition.
Walmart, at the time of Flipkart purchase in May, had indicated the deal would lead to a per-share earnings hit of 25 to 30 cents this fiscal year and 60 cents next fiscal year.
CFO Brett Briggs said that while there was “some disruption to business,” Walmart doesn’t “currently expect there’ll be any significant impact.”
"All the reasons we cited for going into India, acquiring Flipkart, when you look at the continued e-commerce growth in India, the size of the market, the growing middle class, all those things are still as true today as they were six months ago. So the reasons we're excited about the market are still there," said McMillon.
With uncertainty looming in India, Walmart investors can take comfort that growth continues to look strong in its home market.But as far as India is concerned, the real test may have only just begun.