Walmart heads for next frontier of e-commerce
“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of eCommerce in the market,” said Doug McMillon, Walmart’s president and chief executive officer. “As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market. We are also excited to be doing this with Tencent, Tiger Global and Microsoft, which will be key strategic and technology partners. We are confident this group will provide Flipkart with enhanced strategic and competitive advantage. Our investment will benefit India providing quality, affordable goods for customers, while creating new skilled jobs and fresh opportunities for small suppliers, farmers and women entrepreneurs.”
In 2016, Walmart spent $3.3 billion to buy Jet.com and the company has been snapping up other online retailers ever since. In India, Walmart doesn't have a major footprint. It operates 21 Best Price cash-and-carry stores and one fulfillment center.
“This investment is of immense importance for India and will help fuel our ambition to deepen our connection with buyers and sellers and to create the next wave of retail in India,” said Binny Bansal, Flipkart’s co-founder and group chief executive officer. “While eCommerce is still a relatively small part of retail in India, we see great potential to grow. Walmart is the ideal partner for the next phase of our journey, and we look forward to working together in the years ahead to bring our strengths and learnings in retail and eCommerce to the fore.”
Flipkart was founded in 2007 by two former Amazon employees -- Sachin Bansal and Binny Bansal.
The company has grown rapidly and earned customer trust, leveraging a powerful technology foundation, including artificial intelligence, and emerging as a leader in electronics, large appliances, mobile and fashion
In a market where Walmart expects e-commerce to grow at four times the rate of overall retail, and with well-known platforms such as Myntra, Jabong
and PhonePe, Flipkart is uniquely positioned to leverage its integrated ecosystem, which is defined by localized service, deep insights into Indian customers and a best-in-class supply chain.
Flipkart’s supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily. In the fiscal year ended March 31, Flipkart recorded GMV of $7.5 billion and net sales of $4.6 billion representing more than 50 percent year-over-year growth in both cases.
With the investment, Flipkart will leverage Walmart’s omnichannel retail expertise, grocery and general merchandise supply-chain knowledge and financial strength, while Flipkart’s talent, technology, customer insights and agile and innovative culture will benefit Walmart in India and across the globe.
While Walmart and Flipkart will leverage the combined strengths of both companies, they will maintain distinct brands and operating structures. Currently, Walmart India operates 21 Best Price cash-and-carry stores and one fulfillment center in 19 cities across nine states in India, with more than 95 percent of sourcing coming from India, aiding suppliers, creating skilled jobs and contributing to local economies across the country. Krish Iyer, president and chief executive officer of Walmart India, will continue to lead that part of the business.
“Flipkart has established itself as a prominent player with a strong, entrepreneurial leadership team that is a good cultural fit with Walmart,” said Judith McKenna, president and chief executive officer of Walmart International. “This investment aligns with our strategy and our goal is to contribute to India’s success story, as we grow our business. Over the last 10 years, Flipkart has become a market leader by focusing on customer service, technology, supply chain and a broad assortment of products. With Flipkart and the other shareholders who have come together, we will continue to advance the winning eCommerce ecosystem in India.”
With retail changing rapidly, Walmart is actively looking for new ways to serve customers and moving with speed. The Flipkart investment represents a unique opportunity, consistent with the approach of looking for innovative ways to grow domestically and internationally, particularly in markets with significant long-term opportunity. The Flipkart investment transforms Walmart’s position in a country with more than 1.3 billion people, strong GDP growth, a growing middle class and significant runway for smartphone, internet and eCommerce penetration.
Walmart’s investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future. Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake moving lower after the transaction is complete. Even so, the company would retain clear majority ownership. Tencent and Tiger Global will continue on the Flipkart board, joined by new members from Walmart. The final make-up of the board has yet to be determined, but it will also include independent members. The board will work to maintain Flipkart’s core values and entrepreneurial
spirit, while ensuring it has strategic and competitive advantages.
Closing is expected later this calendar year, subject to regulatory approval.
To finance the investment, Walmart intends to use a combination of newly issued debt and cash on hand. Upon closing, Flipkart’s financials will be reported as part of Walmart’s International business segment. If the transaction were to close at the end of the second quarter of this fiscal year, Walmart expects a negative impact to FY19 EPS of approximately $0.25 to $0.30, which includes incremental interest expense related to the investment.
In FY20, as we look to accelerate growth in this important market, Walmart anticipates an EPS headwind intotal of around $0.60 per share, comprised of:
- Operating losses of approximately $0.40 to $0.45 per share, assuming minimal tax benefit for losses in the near to mid-term. This amount includes about $0.05 per share related to amortization of intangible assets and depreciation of short lived assets resulting from purchase accounting, which will only last for a few years post-closing.
- Interest expense of approximately $0.15 per share.
As Walmart scales in India, the company will continue to partner to create sustained economic growth across agriculture, food and retail. Future investments will support national initiatives and will bring sustainable benefits to the country, including:
Job creation, as plans would create jobs through development of supply chains, commercial opportunity and direct employment.
- Supporting small business and ‘Make in India,’ through direct procurement as well as increased opportunities for exports through global sourcing and eCommerce. Among other initiatives, Walmart will partner with kirana owners and members to help modernize their retail practices and adopt digital payment technologies.
- Support farmers and develop supply chains through local sourcing and improved market access.
- Reduced food waste by improving waste management practices and investing in supply chains, especially cold storage.