Walmart Acquires Flipkart: Impact on the Retail Industry and Consumers
Updated: Feb 6, 2021
Earlier last week, the Indian retail scenario saw a major transformation with an acquisition that involved one of the biggest players in the Indian e-commerce industry and the largest retailer.
On 10th May, almost everyone across various areas of interest was talking about, what is deemed to be the biggest e-commerce deal. Post 20 months of conversation, Walmart Inc. has successfully concluded by picking up a 77% stake in Flipkart for $16 billion. With the share that high and an evaluation of over $20 billion, this is also regarded as the largest buyout for the US-based firm.
The acquisition includes $2 billion as the amount set aside for fresh investment by Walmart.
The aim is to take on rival Amazon’s global expansion, pegging the value of Flipkart at $22 billion. While the world is talking about this business deal, let’s take a peek into what this means for the companies involves, the retail industry and most importantly, the consumers.
Walmart acquires Flipkart: What does this mean for the retail giants?
Walmart acquires Flipkart is a deal which will not only put Amazon and Walmart in the same pit for competition but will also see one of its founders’ complete exit. Sachin Bansal, the co-founder will withdraw himself while Binny Bansal shall remain invested. Having that said, the Flipkart brand shall remain distinct from that of Walmart.
For Walmart, the market scenario wasn’t as rosy with it dropping by 4% to ~$240 billion because it lost $10 billion in market capitalization. Now, competitor Amazon saw a marginal increase in market capitalization by 0.3% to $779 billion. Post the business deal, Walmart can leverage Flipkart’s expertise and reach out to a wider customer set. Walmart can finally expect to break the constraints it has faced in the Indian market for the past 11 years and grow in the market.
Both firms together can nurture the startup work culture and ethics thus creating an interesting trend for the industry. Walmart chief executive Doug McMillon expressed his keenness on learning how to build an ecosystem, innovate and build better modes of service and payments. In return, Flipkart will benefit from Walmart’s experience in omnichannel expertise, sourcing and supply chain management.
The rest of the 23% stake in Flipkart will be held collectively by Binny Bansal, investment firm Tiger Global, Chinese Internet conglomerate Tencent, and Microsoft Corp. Flipkart and Walmart have also announced their plans to rope in other investors. Alphabet might be one of the companies that would invest $1-2 billion in the company.
How does the industry perceive this?
A few market experts have expressed their disappointment in the acquisition saying they expected a native company to scale up and become an e-commerce giant that can survive the hypercompetitive environment. However, given the capital needed and the fact that Indian markets lack on that front along with regulatory freedom, this seemed to be the next best option for Flipkart.
This deal would not only help Walmart globalize its customer base and improve its technological resources, but will also place it closer to its direct competitor, Amazon on this front. This battle between an empowered Flipkart, Walmart and Amazon will shrink the space for smaller players in the industry as it is now expected that prices and quality of the goods, and delivery services and payment options will be highly competitive.
This acquisition will not only up the competition in the retail space but will also create more employment opportunities in this sector. Economic sectors like the agriculture and infrastructure domains will benefit highly from this competition between Flipkart and Amazon. Not only will the farmers get an advantage of increasing demand for goods, this scenario would also boost the overall customer goods’ quality.
This economic boost will be coupled with the need for technological innovation in the space.
We might witness more developments in the delivery systems, payment services and even in application and website designs. This will push the competitors to up their game too and will ensure better customer experience in general.
What changes for the consumer?
The American giant, Walmart will bring in a higher range of products to the Indian customers.
With lower prices and a higher number of products to offer, Amazon is bound to fight back with highly competitive price ranges. Pair this with a broader range of services that would be offered to an average Indian e-retail consumer, and the customer base is set to benefit from this entire business deal.
Flipkart’s great innovation, the cash on delivery system resonated well with the Indian customer and forced other retail players to introduce the same. The deal involving the two domain experts will bring in a similar portfolio of innovative services to make the customer experience seamless and efficient.
While the advantages of the backend synergies will develop and take shape over time for both Walmart and Flipkart, in the short term, the acquisition is expected to contain Amazon’s growth and share in the market and also increase the competition for other players.