By Ishant Gupta
Flipkart lost nearly half of its funds, raised since inceptionalmost $3 billionin the wake of its deal with Walmart.
How did it start?
The initial talks were heard by the end of Jan 2018, when the Economic Times published an article about Walmart being in talks with Flipkart to enter the India market. Up till now, Walmart had planned on acquiring a majority stake in the Flipkart which would have cost the giant around $10-12 billion and would have provided it with a stake of around 52 percent in Flipkart. This stake would have been snatched from the hand of existing investors such as Softbank, Tiger Global, and Naspers etc.
However, the recent turn of events states otherwise. Softbank and Tiger Global plan on retaining a part of their share which slides the prospective stake to 40 percent. Irrespective of this fact, nothing can stop Walmart from being a majority stakeholder if the deal takes place. According to people aware of the matter, the deal should be finalised in the next 10-15 days.
Triforce of e-commerce
A survey conducted by Goldman Sachs states that the Indian e-commerce industry will become a $100-billion-dollar industry by the year 2020. With Amazon, Alibaba backed Paytm Mall and Flipkart as the tri-force in the e-commerce sector in India, the future of Indian e-commerce is highly volatile. Flipkart, in the recent years, has started losing market to its competitors when its growth fell from 50 percent to 25 percent in the third quarter. However, the deal with Walmart will provide the needed boost to Flipkart. The valuation of Flipkart is speculated to double after the deal cracks. Apart from all the funds that Walmart will bring to the table to fence off Flipkarts competitors, Walmart will also provide Flipkart with its experience of over 50 years of being an offline retailer. A recent report suggests that e-commerce is only five percent of the Indian retailer market. The rest 95 percent is mostly dominated by kirana stores. If these giants want to dominate the retail market, they must make their presence felt, offline. Amazon had already made their move and is experimenting self-service stores in the US so that they can replicate the same in India. With the deal, Flipkart is at par once again. For Walmart, it is a win-win situation as India is the only market open to its core competitor Amazon, making the future of e-commerce bright.
In totality, a fierce competition has started with the deal between Flipkart and Walmart. Making all three forces at par on the financial front. Amidst all this, one thing is sure more discount, and lucrative offers are on the way.
Profitability and e-commerce
E-commerce giants are notorious for being the drainage point for the investors. Accumulated losses of Flipkart alone stood at $3.6 billion or RS. 24,000 crores. With discount offers not seeing a halt in the near future, these giants need to find ways to attain profitability. The fact is that is none of the giants attains profitability by selling. Amazon earns money through its cloud computing system whereas Alibaba does it by advertisement of the merchants products. Flipkart, too, needs to find its niche. Although it had cut cost in the past by selling under private labelswhich leads to full control over inventory and profit margin and other factorsthe $3.6 billion on its balance sheet suggests otherwise.
Another strategy that these giants have adopted is diversifying. In supply-chain context, they plan on becoming an Omnichannel. These companies have recently entered grocery market in India which marked a $1 billion sales in the year 2017. An industry expert in an interview rightly said: The goal is to sell everything under the sun, under one roof.” Amongst all the uncertainties, one thing is certain; e-commerce in India is going to witness a paradigm shift, soon.