Why Flipkart acquired Walmart India and other key questions answered

Walmart-owned e-tailer Flipkart announced the acquisition of its parent's cash-and-carry business in India on July 23 as it prepares to compete with rivals Amazon, Reliance's JioMart and Udaan in their attempt to lure kiranas.

In what's called a reverse merger, the company bought Walmart's 12-year old business in India which has expanded to 28 stores and 1.5 million members.

Here's are some questions and answers on why Flipkart went ahead with this acquisition and what it means for its operations.

India’s retail landscape is suddenly abuzz with talks about mergers and consolidation. Amazon is reported to be in talks to acquire stake in Reliance Retail. Reliance Industries is also reported to be in talks to acquire the retail business of Future Group. Guess what…even Amazon is reported to be in talks with Future Group. Even though none of these deals have materialised, the conversations are sufficient enough to make you believe that consolidation is the new normal at least in the Indian retail market.

With overlapping resources such as warehouses, supply chain and manpower it only made sense for Walmart to ensure the consolidation of its two entities. Now with Walmart India's cash-and-carry business Best Price, Flipkart will have a 360 degree advantage. It already had a 200 million online user base. It now gets the user base of retailers. It will be holding power on both sides of the consumer ecosystem.

"The online shopper was always on Flipkart and the retailer is now also on Flipkart. Look at the data which is generated, the predictability of demand, the bargaining powers for specific categories. All of this is going to be massive," said Sreedhar Prasad, independent e-commerce analyst.

Two words — Credit offering.

Credit has become a very important aspect in the retail business. On the ecommerce front, Flipkart has partnered with over 10 non-banking financial companies (NBFCs) to offer hassle free credit to lakhs of sellers under its initiative — Growth capital.

Post this acquisition, Flipkart is also expected to offer the credit options to business-to-business (B2B) sellers. Needless to say the timing makes it all the more crucial. There will be multiple takers given the troubles many of these kiranas and micro, small and medium enterprises (MSMEs) must have seen due to the COVID-19 impact on their businesses. Over a period, this move is also expected to strengthen Flipkart's financing business.

You bet it does.

The pandemic has accelerated the pace of digitisation in the country. Most of the retailers in the nook and corner of cities are convinced about the idea behind the use to technology to boost their business. Many of them can be seen with one of the other digital payments app or platform.

However, the penetration is still on a minuscule level. Udaan -- the online marketplace that allows retailers to buy and sell fashion products, groceries and electronics -- ensured one thing which made it so popular -- providing seamless online experience to its users.

All that Flipkart Wholesale is expected to do is to ensure the same experience to its retailers that it provides to its marketplace users. The company has announced it will offer one-stop access on an extensive selection of products to all its retailers which will be supplemented with data-driven recommendations.

According to a report by consultancy firm RedSeer Indian retail is expected to grow to $1.3 trillion by 2025 at 6 percent compound annual growth rate (CAGR). It is huge enough a market to be vied by multiple players. What will be interesting to see is how much war chest these companies have and if they would want to shed blood the way they did it in the e-commerce business.

For the record, Walmart India reported an accumulated loss of Rs 2,181 crore for the financial year ended March 2019. Rival Udaan on the other hand reported a loss of Rs 779.5 crore during the same period.

A couple of weeks ago, Flipkart announced a fund raise of $1.2 billion from parent Walmart, which raised its valuation to $25 billion. Udaan last announced a fund raise of $585 million at a valuation of $2.8 billion.

Flipkart, which was acquired for $16 billion in 2018 by Walmart, will launch its wholesale unit -- Flipkart Wholesale -- in August with grocery and fashion segments.