Walmart, one of the biggest retail corporations in the world, has bought a major share of Flipkart, the Indian e-commerce giant. The deal is an official one and Walmart is paying about $16 billion for the 77% share that it is buying. The remaining share is retained by some of the old stakeholders including Binny Bansal, co-founder of Flipkart.
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The other co-founder, Sachin Bansal leaves Flipkart, selling off his shares and SoftBank, one of the major investors also exits.
Experts opine that it is a win-win situation for both the parties and here are a few points as to why this is justified:
Core Values of Flipkart will be Retained: Both the companies will continue to maintain their individual brands and operating structures. The core values and entrepreneurial spirit of Flipkart will be maintained while ensuring that it reaches a better position in the market from both strategic and competitive point of view.
Increase in Profits: It has to be mentioned here that eKart, a supply chain arm of Flipkart serves 800 cities and delivers about 5,00,000 products a day. This makes Flipkart a prospective company to invest and the buy-out is expected to increase the profits.
With the backing of Walmart, Flipkart will not have to worry about constant fund-gathering. This stability provided by Walmart will allow Flipkart to concentrate on introducing new product categories and emerge as a bigger company.
A growing middle-class and a growing craze for smart-phones and e-commerce in India will further ensure that the money invested by Walmart yields it significant profits.
New Investors to Join: New investors are expected to join in as both Flipkart and Walmart are planning to bring more of them. This will reduce the percentage of the share of Walmart a bit, but it will still remain as the main share-holder. Rumours have it that Alphabet may also join as an investor in the near future. Old investors such as Tencent Holdings Limited and Tiger Global Management Ltd. will also continue to invest.
Hopes about Declination of Losses: Walmart has invested in a local giant aligned with strong shareholders and focused on customer satisfaction. It expects the losses to decrease and returns to be enhanced soon.
Chances of Flipkart Becoming an IPO: It is also being said that Flipkart will become an IPO within a few years. This will definitely help in bringing more investors easily and will eventually lead to its further growth.
Transformation of the Position of Walmart in the Country: Walmart India presently operates around 21 cash-carry stores in the different parts of India. However, it is not doing very well in offline retailing and is losing out its business to Amazon, the multi-national e-commerce giant that has captured the local market ever since its inception in India (2012). Flipkart, though an indigenous brand, has given tough competition to Amazon and buying it will make Walmart a stronger team to fight its competitor in the Indian market.
Saurav Srivastav from the Indian Angel Networks has rightly pointed out that the move will help Walmart to explore a bigger market.
Additionally, the industry finds that the deal will be beneficial from 'Make in India' perspectives too, as the indigenous resources will be utilized to a great extent.
Apart from the benefits that Walmart, Flipkart, the customers and the local farmers are supposed to enjoy, there are challenges too, such as the possibility of opposition from the brick-and-mortar firms and local retailers. Another challenge will be to connect the villages of India for supplying fresh products from the farm which will incur huge logistics.
To conclude with, it can be said that there are hurdles but both the parties are happy about their decision and optimistic about the deal, as mentioned by Shanti Mohan, the founder of LetsVenture.