Walmart-Flipkart Deal Faces Big Threats From Small Traders

by Sohini Bagchi    Jun 05, 2018

deal

US retail giant Walmart, which signed an agreement in May this year to acquire 77 percent stake in Flipkart, expects to close the deal before the end of current calendar year. However, the Walmart-Flipkart deal faces allegations of causing tremendous damage to small traders, as questions arise whether these moves would thrreaten the world’s biggest ecommerce deal upon completion.

Walmart-Flipkart Deal in troubled water

Last month, Walmart wrapped up its much-awaited Flipkart acquisition for $16 billion. Walmart’s bid was at aimed at competing with archrival Amazon.com in a major growth market but prompted protests from Indian traders’ groups. A recent ET report suggests that the traders alleged that the Walmart-Flipkart deal will cause “irreversible damage to small traders and endanger the jobs of thousands. Associations such as the Centre of Indian Trade Unions (CITU) and the All India Kisan Sabha (AIKS) reportedly called for the deal’s nullification. The arguments were centered around the expected monopoly of the US-based companies in the Indian retail market as well as access to sensitive consumer data by these MNCs.

The Confederation of All India Traders (CAIT) filed an objection to Walmart’s buyout of Bengaluru-based Flipkart, adding that the deal would create unfair competition and result in predatory pricing. However, sources close to the deal said that CAIT’s filing with the Competition Commission of India (CCI) did not pose a challenge to the acquisition.

“It’s very unlikely the CCI will look into this complaint as both Flipkart and Walmart are not competing in India in relation to any products or services,” said a source with direct knowledge of the deal said the CAIT complaint was “not a matter of concern” according to NDTV report. [Read the full report here]

On contrary, Walmart claimed that it is planning to scale up its kirana store program called Mera Kirana that helps small family-owned grocery stores modernize, while also opening fulfilment centers to expand its cash-and-carry footprint across the country.

“We’ve seen a lot of loyalty from kirana stores because they understand that we are not just selling to them we are also helping them become modern. We’ve seen healthy double-digit growth in our membership base year-on-year,” Rajneesh Kumar, chief corporate affairs officer at Walmart India told LiveMint in a recent interview.

This could be a clear indication thar the deal ultimately intensifies the battle between two foreign giants - Amazon and Walmart - and leaves little space for Indian companies to show their muscles.

Read more: Flipkart Vs. Amazon: Here’s What The ‘Big’ E-Commerce Battle Reveals [Infographic]

The Indian e-commerce is projected to reach $200 billion by 2026 from $38.5 billion as of 2017, according to global financial services company Morgan Stanley, as smartphones  become more affordable and mobile data becomes cheaper, making online shopping increasingly accessible.

The e-commerce majors are not perturbed at such ’small issues’. As Walmart believes, capturing a share of this growing market via Flipkart will be its best chance of establishing its foothold in India, especially after the Chinese opportunity is already taken and its arch rival Amazon has a very strong grip in the US. Walmart will be able to access Flipkart’s loyal customer base, a well-established e-tailing delivery system and benefit from its learning of being a category creator in India. On the other hand, the deal will give Flipkart an instant leg up in the offline retail space and a strategic investor with great learning.

Meanwhile, Amazon founder Jeff Bezos committed investments to the tune of $5 billion for the Indian market a day before the rivals’ deal announcement. Earlier, Amazon reportedly made a bid to acquire a controlling stake in Flipkart, even though the latter [founders and investors] preferred to go with Walmart. Experts believe the fresh funds will hugely benefit Amazon.in, which has been aggressively investing in expanding infrastructure and adding solutions to enhance consumer and seller experience.

Done deal by end-2018

According to a regulatory filing with Securities and Exchange Commission (SEC), Walmart said the ongoing operations of Flipkart are expected to impact the US company’s income negatively. “In May 2018, the company announced it will pay approximately $16 billion in exchange for approximately 77 per cent of the outstanding shares of Flipkart Group. The investment includes USD 2 billion of new equity funding… Closing is expected later this calendar year, and is subject to regulatory approval,” the retail giant said.

“Upon closing and consolidating the financial statements of Flipkart, we expect the ongoing operations of Flipkart to negatively impact fiscal 2019 net income. We intend to fund the acquisition of Flipkart with a combination of newly issued debt and cash on hand,” it added.

Speaking at an investors meet, Walmart Inc President, CEO and Director, Douglas McMillon, said they were learning about retail ecosystems and how they work around the world and believes it is a big bet. “We want to be in places that have a tremendous opportunity, which is what led us to Flipkart in India,” he told PTI, justifying the acquisition.

Still early days to assess the gain

Adrian Lee, Research Director, Gartner expects the status quo to remain within the year after the Flipkart-Walmart deal is completed. This is an extension of Walmart’s global expansion strategy. This should not be observed without mention to Alibaba Group’s intent to become the third player in India.”

Lee said, “Smaller players constantly face a problem of scaling up their operations. However, this does not mean that they will be forced to exit. The smaller players in many cases are more agile and open to new business models. They should concentrate on specialization within their domains to build up a valuable cache of users seeking differentiated retail experiences,” summed up Lee.

As far as the Walmart-Flipkart deal is concerned, it is clearly a big deal for Flipkart and its founders. However, it is still early days to assess the net gain for Walmart as it is in an experimental mode to win a share of Indian online retail market through Flipkart.