By buying stake in Flipkart, Walmart wants to achieve these 3 lofty targets

Walmart, the world’s biggest retail chain, has set three clear targets while trying to pick a controlling stake in Bengaluru-based Flipkart, sources aware of the developments said. Through Flipkart, the American major is looking for the first real entry into the promising Indian retail market after having dabbled in cash-and-carry or business-to-business (B2B) operations for about a decade. Also, it plans to take the Flipkart model to the US to pep up its e-commerce business, which has disappointed investors. More than anything else, it wants rival Amazon to burn much more cash in the India market to compete with Walmart-backed Flipkart. In the American market too, the deal could give some stress to Amazon, currently facing the US administration’s attack. 

In the run-up to the acquisition, with a possible announcement in June, the India business of Walmart is clearly in preparation mode. While the top strategy team is busy flying to boardroom meetings spread across Bengaluru and Bentonville (Arkansas), structural and operational changes are playing out in the India offices of Walmart, said a source. While the Bentonville-based chain would like to retain its cash-and-carry business in India, it is transitioning towards a change with an online focus, the source said.

The India business so far has been insignificant. Walmart India’s latest numbers show an annual revenue of around half a billion dollars (Rs 36 billion), against $500 billion global revenue of the group. The American retailer is working towards changing that and a deal with Flipkart, at a valuation of $20 billion, seems to be a way out.     

President and Chief Executive Officer Walmart India Krish Iyer, who recently returned from a visit to the US headquarters, spoke to Business Standard on the group’s focus, but refused to speak on the proposed deal with Flipkart. Even Flipkart declined to answer any question on the deal that even saw Amazon on the negotiation table to pick up a substantial stake in the Sachin Bansal and Binny Bansal founded company.      

Bricks to digital

  • Walmart enters India in tie-up with Bharti in 2007
  • Venture ends in 2013, goes on its own 
  • Operates 21 B2B stores in India
  • Global revenue at over $500 billion
  • India revenue for 2016-17 was $0.55 billion
  • Plans ambitious e-commerce foray  

“Walmart India is fully focused in growing our existing B2B cash-and-carry business…. The business in India has shown double digit year-on-year growth,” Iyer said. But an analyst pointed out that B2B is not so much in Walmart’s DNA and that the group is trying hard to reach out to the Indian masses directly through business-to-consumer. Since it has not been able to open multi-brand brick-and-mortar stores so far due to policy constraints, an entry through Flipkart, which already has a huge brand following, is the best option before it. Out of a total of 6,363 stores across Walmart internationally (outside the US), only 356 follow the wholesale or B2B format. In China, out of a total of 439 Walmart stores, only 15 are B2B. In other important markets such as Canada, Central America, Japan, and the UK, Walmart does not operate any B2B store.       

ALSO READ: Walmart close to buying 51% stake in Flipkart, deal likely by June: Sources  
On the online business plans, Iyer said, “Currently the online B2B segment in our business is small, but it is growing as part of our omnichannel customer-centric philosophy.” Omnichannel allows small businesses and kirana stores to buy from Walmart through an app (BestPrice), call centres, and business development associates. On whether there would be a shift towards e-commerce over the coming months and years, Iyer called India a priority market for Walmart and that the “focus continues to be B2B”. With 21 stores now, it plans to add another 50 in the next few years in India. This year, some five to seven stores are expected with the next one either in Ludhiana or Vizag. 

A source in the know of the group’s strategic thinking said, “Walmart need not make any investment in multi-brand brick-and-mortar any more. It can straight migrate to online through Flipkart.” Just like Walmart acquired American e-commerce company for $3.3 billion to replicate its model, it plans to do the same with Flipkart. “It would want to take Flipkart to the US and have the same platform and knowhow.” But Flipkart’s local business will continue the way it is, the source added. Some others associated with the developments, however, argued that the Flipkart brand may not be taken to the US, but certainly the learnings, innovations, and pricing mechanisms could be replicated.  

While Walmart India may reduce the focus on cash-and-carry business in future to invest in e-commerce, it would keep the operation going, sources said. In fact, Flipkart may use the American chain’s B2B format to service local products and go deeper into the India market, they pointed out.

But, as Brett Biggs, executive vice-president and chief financial officer of Walmart Stores, pointed out recently, “we plan to allocate more capital to e-commerce, technology, logistics, and allocate less to new stores….” In India, Walmart has tried to enter the online business before and experimented at different levels, but this time its game plan seems to be serious.

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