Flipkart investment: How Walmart hopes to hit two birds with one stone

As its investment in Flipkart nears fruition, Walmart is not only looking at the deal as a way to take on its arch nemesis Amazon in India, but is also fulfilling its dream of playing in the vast and untapped offline retail sector in the country.

A partner like Flipkart will allow Walmart to play in India’s offline retail space that largely continues to be served by small unorganised retailers. For Flipkart, the deal could help it tap a much broader base of consumers, helping it grow faster and stay ahead of rival Amazon.

“E-commerce will continue to grow at a certain rate, but for these players to grow faster, they will have to assimilate and co-opt the offline environment as well. When investors are asking them to grow faster, they’re going to have to address the 95 per cent of the pie,” says Manish Maheshwari, former head of Flipkart’s marketplace business.

Unlike China and the West where large format retail dominates the offline space, India continues to be dominated by neighbourhood stores. This key difference could be the reason why online retailers are exploring offline routes much earlier in their life cycle than in other parts of the world.

The Economic Times on Tuesday reported that Walmart’s negotiations with Flipkart include a proposal to open an offline retail chain. If approved, the deal will give Walmart a way to sell directly to consumers, something it has been vying to do for years, rather than just running a wholesale business here.

“This has been in the pipeline for some time now and the discussions that are happening has more to do with the shareholding pattern. Strategically, this makes a lot of sense and it’s the right time for this to happen as well, that’s why the valuation is also much higher,” said a person close to the development who did not want to be named.

Walmart has offered to buy Flipkart shares on the primary market at a valuation as high as $20 billion, while the secondary component of the deal will be at a lower valuation.

Moreover, Walmart is among the largest offline retailers in the world and brings with it great learnings about sourcing, store location, store layouts, merchandising and checkout. This would give Flipkart an instant leg up in the offline retail space where it will go up against giants such as Reliance, Tata and Future Group.

Both Amazon and Alibaba in the last two years have begun experimenting with offline stores in their home markets as they look at new avenues for growth there. However, in India, their major focus still remains on e-commerce as the market continues to show high double-digit growth and is expected to do so for the next few years. Flipkart and Walmart’s move could upset this and spark a new war.

“Early adopters have begun shopping online, but for the laggards to be brought up to speed, you need some kind of an offline strategy. Myntra has opened its first stores and those are doing quite well, Lenskart is doing amazing business with its offline experience stores, so I wouldn’t be surprised if more of them (e-commerce players) go offline,” adds Maheshwari.

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