Walmart sees Flipkart as key to atone for missteps in China
New York: Walmart Inc. lost out in China by betting on the wrong horse. In India, the retailer is prepared to pay up to secure the top steed.
The world’s biggest retailer is nearing a deal to buy a majority stake in India’s top online retailer for at least $12 billion, people familiar with the matter said. Flipkart Online Services Pvt’s major investors, including SoftBank Group Corp., are on board with Walmart purchasing as much as 80% of the company, the people said, and they may complete the agreement in the coming weeks.
In buying Flipkart, Walmart would seek to redress missteps in China, where it initially bought an unprofitable, second-tier online marketplace, then exchanged it five years later for a stake in JD.com, the number-two player behind market leader Alibaba Group Holding Ltd. The strategic shift forced Walmart to play catch-up in the world’s biggest e-commerce market, and chief executive officer (CEO) Doug McMillon doesn’t want to miss the opportunity before him in the world’s second most-populous nation.
“They missed the boat in China, and they don’t want to make the same mistake in India,” Robert Gregory, global research director at consultant Planet Retail RNG, said by phone. “It’s quite clear that the future of markets like China and India are online. If Walmart wants to play in India, it has to invest.”
A Flipkart investment would likely be Walmart’s biggest deal in almost two decades and strike a blow against rival Amazon.com Inc., which holds 27% of India’s $30 billion e-commerce market, according to data tracker Euromonitor. Amazon’s market share trails Flipkart’s 34%. The online retailer has committed $5.5 billion to expand its business in India, where it’s built a new mobile app and is pushing into new areas like groceries just as it has in the US.
Walmart has tapped India and China as its two main growth markets abroad. The retailer needs to grab more customers in both nations, since other international regions such as Brazil and the UK have floundered. Online sales are the key in those sprawling Asian markets due to the difficulty involved in reaching shoppers with traditional big-box stores. The retailer operates 443 stores in China and 20 member-based wholesale clubs in India.
Walmart’s initial Chinese foray involved buying a stake in online retailer Yihaodian in 2011, hoping to tap into the booming web market and complement its physical locations. But Yihaodian held just 2% of Chinese online sales and couldn’t help Walmart gain ground on Alibaba. A series of management reshuffles didn’t help, and so when McMillon became Walmart’s CEO in 2014, fixing China was on the top of his to-do list.
In the summer of 2016 McMillon acquired a 5% stake in JD.com, which took ownership of Yihaodian as part of the deal, giving Walmart a fresh start in China through access to JD’s flagship online store. Later that year Walmart struck a partnership with a firm called New Dada that provides delivery of online orders in less than an hour. Walmart now owns 12% of JD.com, which sells everything from washing machines to ultra-high pasteurized infant milk from Britain through a supply chain that’s linked to Walmart’s.
Despite its progress in China, Walmart’s resigned to playing second fiddle there to Alibaba. In India, it has a chance to flip the narrative and be No. 1.
“There will be a big battle to see who will control the Indian online space,” Gregory said. livemint