The Big Buyout
The news of a $16 billion acquisition of the e-commerce brand by Walmart, world's biggest retailer, echoed all over India. This deal solidified the stance of Walmart in India by becoming the country's largest acquisition deal and also the world's largest purchase of an e-commerce company. That is quite a statement and a signal of the intent of doing business in the country. The procedure, talks, and delegations of over 20 months finally came to fruition with Walmart now a 77% (majority) shareholder in the company. Venture capitalists and private equity professionals certainly seem to be happy by the acquisition since put together, these individuals are all set to be richer by $14 billion which is not a small amount by anyway, shape or form. However, even after all the financial investments by Walmart, they could have potentially grossly underpaid for acquiring Flipkart with the endless opportunities the Indian marketplace has to offer.
Walmart "Stole" the show?
Let's take a step back and say that compared to the everyday man, this deal is huge and involves a lot of money being thrown around by Walmart in the process making many Investors and shareholders extremely happy. However, in the grand scheme of things, the potential this acquisition presents for Walmart could quite literally make them feel like they invested no money in the company. Let's look at some facts of the business dealings of Flipkart in India.
Annual Gross Merchandise Value of Flipkart is $ 7.5 billion. Which means they will recover their initial investment into the company in just over 2 years if they only sold merchandise. However, we know Flipkart has already diversified their sources of Income with Affiliate Marketing programs and new product range. Flipkart is also looking to dive into the entertainment sector with plans to launch bids for a stake in HotStar, the media streaming app.
The number of active users on Flipkart is about 54 million and is only bound to rise with the backing of Walmart
Flipkart sold over 261 million units of goods in the year 2017-18
Flipkart group also maintains the top position in India for fast growth categories including fashion and electronics like mobile phones and laptops etc.
Thus, the future prospects for Walmart-Flipkart are looking very bright. With a combined effort they could look towards dominating the Indian markets in e-commerce. Binny Bansal, Flipkart's Group Chief Executive is also confident about the acquisition and refuted claims that Walmart paid in excess for Flipkart and added that the move comes as a "long-term bet on India". Binny also says that it will be clear in the next 5-10 years that Walmart has landed themselves an absolute bargain with the acquisition. Binny has also mad a bold claim that "Flipkart was the only viable option for Walmart". He could be true as the process of company registration, setting up a network in the country and being in compliance with GST registration and GST return rules could have proven to be a hurdle for Walmart had they not acquired Flipkart
Impacts of the Acquisition
Walmart acquiring Flipkart is going to change the e-commerce and retail landscape in India drastically. A small company which started as a book delivery service started by two ex-employees of Amazon(how ironic!) Flipkart, is set to maintain it's identity and its culture according to the CEO of Walmart. However, they will now have the expertise of supply chain management of the world's biggest retailer behind them. It looks like things are looking up for Flipkart, at the very least.
The economy, the e-commerce landscape, local traders, everyone is going to be affected by this huge shift. In a quest to catch up with rivals Amazon and expand their business globally, Walmart has been very persistent with the acquisition. Let's look at some of the impacts of the acquisition on the country.
Agony for Small Scale Online Sellers- Walmart has been known for wiping out small-scale traders by introducing highly competitive prices and bringing in their own labels into the country.
Strong Ally - Flipkart is a household name in India for e-commerce having that kind of outreach attached to their name and now the backing of supply chain management experts like Walmart could lead to the overhauling of the Indian markets.
Economic Boost - Amazon has already reached out deep into their pockets and invested a lot in their operations in India with over $5 billion worth of investment already made. The intense power-struggle between Amazon and Walmart will now invite opportunities for more investments in the country, more jobs created and creating a vast infrastructure of the supply chain.
More Variety for Consumers- The consumption of goods has been projected to rise to $3.6 trillion by the year 2027, which means these brands will have to deliver a vast variety of products at competitive rates to be relevant to consumers who do not blink twice to change preferences today.