On Sept 15, 2007, two IIT-Delhi students gave birth to the biggest success story in Indian e-commerce from a two-bedroom apartment. Like Amazon, Flipkart was primarily focused on the sale of books and later on expanded its categories.
Flipkart became popular very quickly and by 2011 was able to make its first acquisition. With a revenue of over 2900 crore INR in 2014, it made its breakthrough acquisition when it made Myntra its subsidiary. The story of acquisitions doesn’t end here.
In 2018, Walmart won a bidding war to become a majority stakeholder of one of India’s most successful start-ups. It all started with a report on 4th May 2018 that stated that the US retail giant, Walmart, surpassed Amazon’s bid on Flipkart and gained majority voting rights for 15 billion USD. This was confirmed on 9th May 2018 when Walmart officially announced its intent to acquire a 77% controlling stake in Flipkart for 16 billion USD. The first after effect of this deal was the expansion of its rivalry with Amazon.
Flipkart’s high profile investors like Microsoft, Tencent as well as Tiger Global decided to retain their board seats. What, or rather who, didn’t remain constant was the founder, Sachin Bansal, as the management started reporting to the CEO of Walmart e-commerce, Marc Lore.
A question that is unavoidable is, why did Walmart spend so much on Flipkart? The President of Walmart, Doug McMillon believed that India’s retail market is one of the most attractives markets in the world, keeping in mind its size and growth rate. The American retail giant even believes that Indian e-commerce will be a 200 billion Dollar industry by 2027, i.e., approximately 5 times its size in 2017.
E-commerce, as an industry, is growing at a very fast rate in India. Presently constituting about 4% of the country’s retail, the figures are going to rise rapidly, keeping in mind the increase in demand of electronics by the younger generation. Walmart wanted to be a part of this growth. Prior to the acquisition, Walmart owned about 21 “cash-and-carry” stores in the country, but its retail presence ended there. Investing money in Flipkart expanded their customer base to a small, yet significant, market of about 100 million people.
Walmart planned for India an investment that, “supports national initiatives and will bring sustainable benefits in jobs creation, supporting small businesses, supporting farmers and supply chain development and reducing food waste.”
Was this the right decision? Analysts are of the opinion that Walmart overpaid for its stakes in Flipkart. The argument was further solidified when Walmart’s stocks dropped to their lowest intraday price since October 2017. This was because the Indian e-commerce market is small compared to the overall population of 1.3 billion. Not only this, Amazon, after establishing itself as a global leader by making up 44% of the US e-commerce, has been expanding in India, and gives Flipkart a tough competition. Walmart still believes that the innovation and experience that Flipkart brings to the table is going to act in their advantage in near future.
This deal panned out well for Flipkart in almost every aspect. The acquisition resulted in a rise of Flipkart’s valuation, which crossed 20 billion USD, soon after the bidding. It saved Flipkart from the cash battle, which it is losing, against Amazon. Flipkart got the much required financial strength from Walmart as it reached the highest stake anybody had ever invested in an Indian Company.
The decision to invest in e-commerce is the best possible one in the present day scenario, keeping in mind it is an industry that expands beyond retail. We are yet to see how the acquisitions pan out for both the parties, as it is too soon to come to a solid conclusion regarding the battle between Amazon and Walmart. Who are you rooting for?