Walmart’s $16-billion investment in homegrown e-commerce startup Flipkart could see more partnerships between online and brick and mortar retailers as the competition in the retail space picks up.
US retail giant Walmart’s $16-billion investment in homegrown e-commerce startup Flipkart could see more partnerships between online and brick and mortar retailers as the competition in the retail space picks up.
More announcements are expected in the next few months with Amazon expected to team up or pick up small stakes in local retailers. Anil Talreja, partner, Deloitte, expects tie-up, mergers and acquisition to increase as players extract synergies to acquire more visibility and technological insights.
“Competition is stiff in the sector and with global retailers trying to establish themselves quickly, they are looking at opportunities in the domestic market. It is coming as a relief to many cash-strapped domestic retailers as they are able to raise funds by selling stake.”
Kishore Biyani, chief executive officer, Future Group, is convinced there will be more offline and online tie-ups.
“Global alliances will benefit Indian retailers in terms of fund infusion more than providing technology,” Biyani said. The Future Group is believed to be exploring a partnership of sorts with Amazon though this could not be immediately confirmed.
Most brick and mortar retailers, especially those in the food and grocery space, have been struggling to make ends meet. Having expanded their networks rapidly in the initial phases, they have been scaling back their operations in the past few years.
With some 30-35 million shoppers, the online piece has been gaining momentum as customers cashed in on the huge discounts.
Other retailers like Shoppers Stop, Dubai-based Landmark group which run chains like Lifestyle, Max, Splash and Trent too are convinced there will be more tie-ups. Rajiv Suri, MD and CEO, Shoppers Stop, said since they stand to benefit from each other’s footprints, more tie-ups between online and offline retailers was a given. Amazon has already picked up a small stake in Shoppers’ Stop via its investment arm. Suri said the company has started selling on Amazon and already has more than 200 brands on the platform. Amazon has opened three kiosks in the department stores of Shoppers Stop and is likely to open 12 more kiosk by the end of this year.
“It is too early to comment on the response, “Suri added. Venkatesalu P, ED (finance) and CFO, Trent, too believes e-retailers and offline players will rely on each other a lot more in the days to come.
However, Trent is exiting from Amazon Prime Now platform as it wants to develop online presence on its own. Speculation is rife that global players like Amazon, Paytm and Google have been looking to buy about 7%-10% in Future Retail for around Rs 3,500-Rs 4,000 crore over the next few weeks. According to media reports, Samara Capital-Amazon consortium is likely to acquire Kumar Mangalam Birla’s Aditya Birla Retail, at an enterprise value of Rs 4,100- 4,200 crore. Also, Bharti group entity, Cedar Support Services, is understood to be in talks with foreign and domestic private equity to sell out of Kishore Biyani-led Future Retail for Rs 850-900 crore. The deals are intended to raise funds as the domestic e-commerce battle heats up.
India does not allow foreign direct investment (FDI) in multi-brand retail, but global companies can invest in a retail company as foreign portfolio investors. An Indian multi-brand retailer can dilute up to 49% stake to foreign portfolio investors, but a single FPI cannot hold more than 10% stake in the firm.
Even after having been around for a decade, most brick and mortar grocery chains are struggling to be profitable. With soon-to-be grocers Amazon and Flipkart looking for partners on the ground, the fortunes of brick and mortar chains could get a boost.