“Walmart Notches Biggest Foreign Investment with $16 Billion Flipkart Deal”
“Walmart acquires Flipkart for $16 billion, world’s largest ecommerce deal.”
These headlines have been splashed across the front pages of most financial newspapers, followed by detailed reports of what went down and how the Walmart & Flipkart deal came to be. TechieScoops’ Monica Manoj Punjabi takes a closer look at this “historical” acquisition to find out if everything is as picture perfect as it seems.
Walmart, A Behemoth in the Retail World
Walmart Inc. is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. The latest addition to the Walmart family is Indian e-commerce startup, Flipkart. But, was this the right move on Flipkart’s part? Can the American giant really benefit the Indian startup? And more importantly, do they have what it takes to go the rounds with Amazon? Walmart’s strength lies in its “Every Day, Low Price” or EDLP strategy. There are several reasons why they were able to conceive and keep this strategy. The company is one of the best in the world at logistics. So, they manage to have a fast turnover of inventory without keeping too much on hand at any given store. They have sophisticated logistics and forecasting systems. This means, they order, ship and sell goods extremely quickly. As they are constantly and efficiently moving stock, they save on storage costs and despite small margins due to low prices, they still make a lot of money on the sheer volume of sales.
Is Flipkart Still Flipkart?
Walmart’s inventory management and logistics handling are the key strengths that the newly acquired Flipkart can majorly benefit from. However, every coin has two sides. The other one, in this case, is not looking very great for Walmart. The Indian sellers on the Flipkart platform have suddenly been thrust under tremendous pressure – they do not know what to expect next. Are they going to be wiped out by the $500 Billion American behemoth?
It is our intention to just empower you and let you run — speed matters, decisiveness matters
~ Walmart CEO, Doug McMillon
The above quote is from a briefing with Flipkart employees & Doug McMillon, in a town hall meeting. Simultaneously, came the news that founder Sachin Bansal was exiting the company completely. That brought the next big doubt to the sellers and even the consumers. Is this newly acquired “Flipkart” the same one that they learnt to love and trust?
The nervousness of the online sellers on Flipkart is not without reason. The retail giant from across the seas can essentially wipe them off, in many ways. They could bring their private labels, via Flipkart, into the Indian market, pitting them against the local brands and adding to the competitive pressure.
And that is just one way things could go.
What is the other route, you ask?
Well, Walmart might have acquired Flipkart in the “World’s largest E-Commerce deal”, but do they have the expertise to keep Flipkart at its remarkable position in this emerging market?
Let us look at their previous attempts at conquering a foreign market.
Walmart’s Past Attempts at World Domination
Walmart has attempted to enter the South Korean market multiple times, finally giving up in 2006, when the Korean chain Emart’s parent company eventually bought the scraps off the Walmart Korea heap with Walmart losing $800 million in the process.
Walmart also spent up to 100 billion yen ($878 million) to buy out minority shareholders in Japanese supermarket unit Seiyu Ltd in 2007. But, just after 7 years, Wal-Mart Stores Inc. closed its 30 under-performing stores in Japan, scaling back in what was once considered one of the retailer’s most promising markets and highlighting the hurdles Walmart faces in securing growth overseas.
In 2012, Walmart got the go ahead from a South African court for its $2.4 billion acquisition of retailer Massmart. Three years later, Reuters reported the following:
“Despite its powerful U.S. backer, South Africa’s number three retailer, selling everything from food to electronics, has added fewer than 10 stores to the existing 25 outside its home market since 2010, lagging rival Shoprite, which doubled its outlets to 300.”
These are just a few of Walmart’s failed endeavors to enter new, foreign markets.
The point being made by these facts is simple – acquisition of an already existing company in a new market is the easy part (at least for giants such as Walmart). The real test, however, lies in maintaining the market share, profits, and enabling the growth of that acquired company in the local market. This, unfortunately, has not been Walmart’s strength.
Maybe this acquisition of Flipkart is making history by being the largest e-commerce acquisition, but only time will tell if Walmart manages to stay afloat while battling rival retailer, Amazon, in the developing Indian market. What do you think? Let us know in the comments section.
An article by Monica Manoj Punjabi for TechieScoops