Armed with more cash and Walmart’s legendary strengths in sourcing, logistics and category management, Flipkart will become a formidable competitor to Amazon India.
If offline retailers scream blue murder after Walmart’s $15-billion acquisition of Flipkart, they would be justified. What Walmart is essentially doing is making a backdoor entry into India where it will leverage its cash-and-carry store presence to sell on Flipkart’s marketplace. Much like Amazon, it would be violating the law, not in letter, but definitely in spirit. FDI in the B2C space is forbidden, but the investments are effectively being channelled in via a ‘marketplace’ while a B2B entity takes care of the logistics, warehousing and so on. But had FDI in the consumer space—B2C and multi-brand retail—not been banned, and had the government opened up multi-brand retail to 100% FDI, the country could have attracted billions of dollars from global players rather than the $1.5-2 billion that Walmart has promised to invest after the acquisition.
It is still not too late given India is the last large market standing, since operating in China is a challenge. An omni-channel strategy is now a must; so, a global retailer may not roll out as many stores as it may have before the e-commerce boom. That would assuage the fears of many who believe global retailers will kill local brick-and-mortar players and spell the death of kiranas. Given the humungous amounts of capital needed to sustain a retailing operation, local retailers are sure to welcome 100% FDI in multi-brand retailing—a Shoppers Stop, for instance, should not mind a larger Amazon stake; it has already given the US firm a 5% stake. Also, despite the emergence of a host of local food and grocery chains—Food Bazaar, Reliance Fresh, Spencer’s—there is little evidence to show kiranas are dying in large numbers. Those that are closing down are doing so for other reasons, primarily a shortage of labour. Experts will point out that a pure online play in the food and grocery space fetches small profits because the costs of maintaining perishables, on a large scale and across SKUs, is very high. Therefore, in this space particularly, an omni-channel strategy is a must.
It is now clear online retailing—given the accent on timely delivery and warehousing—can create tens of thousands or even hundreds of thousands of jobs. More critically, it has proved to be a life-support for vendors, especially smaller ones, who are now able to access customers they could not have dreamt of reaching out to a few years back. Another big gainer will be the farm sector, given Walmart’s skills of sourcing at the farm gate and selling fresh groceries to consumers—assuming, of course, the government is able to remove existing irritants like APMC and other rules. Indeed, if India’s e-commerce market was tipped to hit $230 billion by 2025, that deadline can now safely be advanced to 2022 or even 2021.
Much of the credit for the momentum in India’s ecommerce space so far must go to Flipkart, which has been a pioneer and a trendsetter. Armed with more cash and Walmart’s legendary strengths in sourcing, logistics and category management, Flipkart will become a formidable competitor to Amazon India. While this is not a winner takes all market, and there could be more investments by the Chinese, the fact that the top two command 70% of the market will lead to some churn. For the time being, this will be a war fought between two global giants, Amazon and Walmart, but the biggest beneficiaries—as more cash is burnt—will be Indian consumers and manufacturers.