22 July 2018

Walmart Takes On Amazon With $15 Billion Bid

#
Share This Story

Walmart Inc.’s battle with Amazon.com Inc. is heading to India.

Walmart is near a deal to invest around $15 billion for a roughly 75% stake in Flipkart Group, India’s largest e-commerce company, according to a person familiar with the matter. It would be a big bet by Walmart that India will be a source of growth at a time when Amazon is gaining ground in the country.

Flipkart, which was started by two former Amazon employees in 2007, has already raised billions from investors including SoftBank GroupCorp. 9984 -0.78% Tencent Holdings Ltd. TCEHY +1.51% , and Microsoft Corp. It sells everything from sofas to shoes and smartphones. Flipkart said it was valued at $11.6 billion in a funding round last April.

Bloomberg reported earlier Friday that the Flipkart board had approved an agreement to sell about 75% to a Walmart-led group for around $15 billion.

The agreement would be Walmart’s largest deal since its purchase of U.K. retailer Asda for $10.8 billion in 1999. Earlier this week, Walmart agreed to sell Asda to a U.K. supermarket rival, a move that raised almost £3 billion ($4 billion) in cash. Walmart is also in talks to sell a controlling stake in its Brazil operations, people familiar with the matter have said.

The potential Flipkart deal opens another front in Walmart’s battle with Amazon as it also invests heavily to grow online in the U.S., where it earns the majority of sales. Walmart has grown slowly in India with stores for years and held talks with Indian e-commerce startups that didn’t lead to an investment.

In part, Walmart’s move is defensive. Though online buying makes up a small percentage of the Indian retail landscape, it is expected to grow quickly. Amazon founder Jeff Bezos has pledged to invest $5 billion in India, and the U.S. titan has made rapid gains against Flipkart since its 2013 launch.

“We estimate that India makes up a material portion of the ‘other’ international retail business, which is expected to drive 30% of Amazon’s total retail revenue growth over the next 3 years,” said Brian Nowak, an analyst at Morgan Stanley in a recent note on the potential deal.

Walmart executives have indicated they plan to compete. “India is a market, over time, that I think, whether it’s 10 years, 20 years, 30 years from now, we’ll be glad we’re in India, and I think there’s a lot of growth opportunities there,” said Walmart Chief Financial Officer Brett Biggs last summer. Walmart CEO Doug McMillon said India is a key growth market for the company, along with North America and China during a February earnings call.

Blocked by tight regulations from selling products directly to consumers, Walmart opened its first wholesale outlets in India in 2009 amid hopes that it would eventually be allowed to open consumer-facing stores. Instead it’s opened 21 Best Price wholesale stores, with plans to open 50 more. The member-only stores resemble U.S. warehouse chains like Costco and Sam’s Club, but are only open to licensed businesses owners to comply with government regulations.

As Walmart’s store footprint grew slowly, India’s e-commerce start-ups proliferated. In 2011, Walmart executives traveled to India to talk with several e-commerce startups about the market, including Snapdeal.com, another large e-commerce retailer, said a person familiar with Walmart’s efforts.

Then in 2016, as Amazon rapidly grew in India and local players sparred for funding, Walmart spoke with Flipkart about a potential investment.

The total Indian retail market already accounts for more than $800 billion a year in sales and is headed north of $1 trillion in the next two years, according to research firm Forrester, but most sales are fragmented between small mom-and-pop retailers and brands.

Marks & Spencer , Zara, H&M and others global brands have set up physical shops. IKEA says it will open in India soon. These retailers are allowed in because they only sell their own products. Foreign-owned companies aren’t allowed to sell others’ brands, which is why it is tough for Walmart to do business here.

Online retail, however, provides an opening. Seattle-based Amazon gets around restrictions by acting as a marketplace only. Its website sells third-party products, providing the tech and logistical support for a fee.

Amazon is now the second-largest Indian e-commerce company after Flipkart by sales made through its website, kicking homegrown e-commerce company Snapdeal off that perch, according to some analysts. Softbank, an investor in both Flipkart and Snapdeal, had pushed the firms to merge last year without success.

A Walmart investment in Flipkart would show “further consolidation of the forces against Amazon,” said Satish Meena, an analyst at Forrester. Flipkart last year raised $1.4 billion from Microsoft, eBayInc. and Tencent. In August it raised about $2.5 billion from SoftBank.

Online retail in India is small compared with other growing markets like China and the U.S., but it’s expected to grow quickly as shoppers become more comfortable paying online. Online retail in India was worth about $20 billion last year but should rise to $35 billion by 2019, according to Forrester. China had $935 billion in online sales last year, and the U.S. $459 billion.

“It makes sense for both Flipkart and Walmart,” Mr. Meena said of a potential deal. Flipkart would benefit from Walmart’s experience in brick-and-mortar retail, which would be useful should Flipkart wish to push into physical sales of items like groceries.

It would give Walmart “a good foothold in the Indian market,” he said. “It’s not a market they want to miss.”

Click here for the original article from The Wall Street Journal.

Join Our Online Community
Join the Better Way To Retire community and get access to applications, relevant research, groups and blogs. Let us help you Retire Better™
FamilyWealth Social News
Follow Us