It was talked about all week. Finally, a Bloomberg report on Friday seemed to confirm that the battle between Amazon and US retail giant Walmart for the acquisition of Flipkart ended with the board of Flipkart Online Services voting to sell close to 75 per cent of the company’s shares to Walmart for $15 billion. This means the largest Indian e-retailer with about 40 per cent share of the online market had been valued at $20 billion (about Rs 1.3 lakh crore), up from $12 billion last August when Japan’s SoftBank had invested $2.5 billion, for a 20 per cent stake.
Flipkart is believed to have gone with Walmart as a merger with Amazon would have given the new entity close to 75 per cent of the online market, leading to anti-monopolistic regulatory issues. For Walmart, Flipkart can become the gateway to the East. The largest company in the world, whose hypermarkets generate $480 billion annually, has merely had a toehold in India so far with less than two dozen stores.
Flipkart, India’s best known start-up, in many ways is a tribute to Indian entrepreneurship. It was started in 2007 by two young IIT-Delhi youngsters, Sachin Bansal and Binny Bansal (not brothers) who earlier worked for Amazon. It was their early vision that saw Indian consumers turning to online shopping for the ease and comfort it provided. Brick and mortar retailers pooh-poohed these start-ups saying e-retailing was a foreign concept and would always be small play in India. Many of us who bought the line that Indians wanted to ‘touch and feel’ whatever they purchased, were proved wrong.
The Bansals were steadfast with their vision and it paid off. They started by selling books online, expanded to mobile phones and garments, and became unicorns — notching sales of over $1 billion — by 2015. They were the first to start the ‘Cash on Delivery (CoD)’ model that broadened the buyer base; and by FY2018, Flipkart was believed to be doing sales of Rs 20,000 crore.
It’s not all easy sailing. Amazon, the world’s biggest e-tailing giant, came to India in 2012. Amazon founder Jeff Bezos had been whipped in China by Alibaba, and seeing India a good bet for the future, committed $5.5 billion to push out Flipkart. The debilitating scramble for buyers with deep discounts has ensured no e-tailer ever made money even though the online buyer base kept expanding. The 51 million shoppers on the Flipkart app have come at a huge cost. The company, though tight-lipped about its P&Ls, is believed to have made a net loss of Rs 8,000 crore on revenues of Rs 20,000 crore last year. That’s a huge hit.
ARE THERE ANY ‘INDIAN’ START-UPS?
The panting level of growth has left Flipkart with very little ‘Indian-ness’. It is as Indian as Amazon! To keep sales at a blistering pace and to stay ahead of others, Flipkart has raised several rounds of funding that has diluted the original Bansals’ equity to just about 11 per cent today. Tiger Global, a New York hedge fund has 20 per cent, Japan’s SoftBank 20 per cent. Other large shareholders include China’s Tencent Holdings, US’ Microsoft Corp and Naspers of South Africa. Though its official headquarters is Bangalore, Flipkart’s financial hub is Singapore.
To fund a good idea, others too have lost their ‘Indian’ roots. Paytm, founded by Vijay Shekhar Sharma and India’s largest mobile wallet platform valued at around $5 billion, is today 40 per cent Chinese with Alibaba investing $680 million in Paytm’s holding company One97 Communications.
If and when Walmart takes over Flipkart, what is in it for consumers? It promises to be a battle of two US Goliaths for the estimated $20 billion or Rs 1.3 lakh crore online market. In another 10 years, pundits say the size will be 10 times or $200 billion. Amazon and Walmart are willing to invest big bucks and take a hit today, because marketers promise consumer buying is evolving in the direction of online consumption.
For Walmart, India will be an important experiment. For a behemoth that employs 2.3 million employees, resources are not a problem. The first casualties will be the smaller e-commerce players, who will either be acquired by the Big 2 or fold up. Fewer options are bad for consumers. On the other hand, with Walmart wanting to keep Flipkart’s market share of 40 per cent, and Amazon striving to become the leader, consumers will have a field day of even deeper discounts and special deals for some time to come.