Walmart, Flipkart kick off ‘new era in Indian retail’

Walmart’s move to invest $16 billion for a controlling stake in Flipkart will start a new era in India for both online and offline retail which will benefit the entire retail sector, analysts said.

“This deal means Indian is building an ecosystem like in China,” said Kishore Biyani, founder and CEO, Future Group. “A combination of online and offline is the new way forward,” he said.

“It is the start of a new era in which both online and offline will benefit. We were expecting it to happen much faster. This deal will grow the market and it is good for the sector. We welcome it,” Mr. Biyani said.

He discounted any immediate threat to his retail empire. “There is nothing new. Flipkart exists and so does Walmart in India. So, it makes no difference for us now. However, we will know how this deal pans out, in future.”

Commenting on how will this deal alter market dynamics in the online space, Ankur Bisen, senior vice president, Technopak said, “the online retail market will move towards the much-desired space of market consolidation. This will allow the sector to respond to market need gaps in the right manner.”

“New categories like food and groceries that are very big but have not moved online will receive attention. Marketing intensity will reduce and these are all the positives in the maturing of the sector,” he said.

“The deal is very positive for both e-commerce and the retail sector in general. The sector will now be known as the custodian of the largest FDI deal in India. This has overtaken the $12.9 billion Rosnoft acquisition of Essar Oil,” Mr. Bisen said.

The online retail market till now has largely pivoted around fashion and electronics but these sectors control only 20% of the total retail pie. Many other categories are yet to move online and that is what may look appetising for Walmart.

Mr. Bisen said the Flipkart deal offered Walmart the opportunity to catapult into a leadership position straight away. “No other market, apart from China and U.S., offers such a big opportunity for Walmart. In the U.S., it is already a leader and in China Alibaba is clearly a dominant player,” he said.

However, Kumar Rajagopalan, CEO, Retailers Association of India, without specifically commenting on this deal, said, “We believe that some e-commerce companies in India have not been adhering to the guidelines issued under the Press Note 3 of the FDI Policy for marketplaces.

“These companies have been directly or indirectly participating in [under]pricing and discounting, which is against the policy that seeks to create a level playing field. We hope the government takes strong steps to ensure adherence to FDI policy,” he said.

“One complimentary effect this deal may have is a strong positive push for Japanese investments in Indian companies. Till now, most the large ticket Japanese investments in India had underperformed or had got entangled in various market-related or company-specific issues. This had led to a cautious approach among many Japanese conglomerates and investors while evaluating potential investment opportunities in the Indian market.

“However, with the Walmart-Flipkart deal, Softbank’s $2.5bn investment in Flipkart has now delivered 60% returns in 9 months. This success story can push more Japanese conglomerates to seriously evaluate and invest in Indian opportunities.” - Manoj Patkar, Executive Director & Partner, 7i Advisors LLP