Saga of Walmart&Flipkart: Will it prime India’s warehousing segment?
WalmartInc. confirmed a $16 billion majority stake in India’s home grown e-retailer Flipkart. Nadine D’Souza explores the impact on the country’s e-commerce market and its cascading effects on the warehousing real estate. In May this year, the heated Indian e-commerce market burgeoning with competition became an arena of sorts. The contenders were the ‘everything store’ Amazon India, touted as the fastest-growing online marketplace in the country; and Arkansas-based Walmart, a company looking to enter the Indian market for more than 15 years. The prize was Flipkart, India’s first billion-dollar e-commerce company. Days after Walmart made a bid for majority ownership of the Indian online retailer, Amazon put in a formal offer to buy 60 percent of the company. The two retail giants, already rivals in the United States, kick started a fresh battle in India, just going to show how important it is for brands to strengthen their presence in the Indian e-commerce market, estimated to be worth $200 billion a year within a decade. As we know now, Walmart emerged victorious. The deal will see Walmart owning nearly a 77 percent stake in Bengaluru-based, Flipkart. The company will not only take on its prime competition, Amazon.com, but will also gain access to Asia’s third-largest economy where it was erstwhile unsuccessful in setting up brick-and-mortar stores. Walmart was previously involved in a brief joint venture with India’s Bharti Enterprises in 2007, but could not sustain the collaboration on account of India’s foreign direct investment regulations. For any international company, acquiring a majority stake in Flipkart would translate to occupying a massive share of the market. Having a strong presence in India is also a step forward in fighting the bigger battle against other international rivals like Alibaba. E-commerce Rumble E-commerce did not have an easy journey in India. By the year 2000, a host of e-commerce firms had closed down, investors bade farewell to their funds and a mass of the population lost their jobs. In the mid-2000s, e-commerce ventured into the Indian marketplace again, this time giving birth to profitable businesses that included Flipkart, as well as other major players like Snapdeal and Myntra. Flipkart’s founders and former Amazon employees, Sachin Bansal and Binny Bansal, recognized the untapped potential of the e-commerce market in India and set up Flipkart set way back in 2008 in Bengaluru. In 2011, the company began to entice foreign investors in a move to fund rapid growth and has been successful in raising over $6 billion till date. With its latest partnership, Flipkart will be able to exclusively access almost 2,000 of Walmart’s products, while Walmart will be the beneficiary strong logistical support on account of Flipkart’s well-established and fine-tuned e-retail delivery system. A deal of the scale of the Walmart – Flipkart acquisition is likely to shake up things in the Indian e-commerce market. Apart from Amazon India, Flipkart has also been competing with other e-commerce rivals such as Paytm Mall, TataCliq, and Shopclues to name a few. The market may witness further consolidation and acquisition of specialized e-commerce companies that will allow the big players (Walmart, Amazon and Alibaba) to grab larger slices of market share in newer segments. Smaller online companies are naturally concerned but, they won’t necessarily be forced to exit, but rather scale up operations and adapt to new business models.The focus will now be on business models, integration and scale, which is only a boost for e-commerce.The intense competition will compel e-retailers and e-commerce companies to step up their discounting and offline players to adapt their traditional brick and mortar models to provide better value to customers. It could also see more partnerships between offline and online players that will create a hybrid on-ground-online ecosystem. Since Walmart has a strong base in grocery, the partnership is also likely to disrupt online grocery retail, forcing existing online grocery retailers like Bigbasket and Grofers to weather the storm. As for Amazon’s response, reports indicate that the company gave its India operations a Rs. 2,600 crore boost. On the flip side, the Confederation of All India Traders (CAIT) maintains that the acquisition will allow Walmart to dominate the retail trade in India in the long run, creating an uneven playing field. Others have criticized the e-commerce model in India, in general, saying that deepening discounts makes e-commerce companies unsustainable. In fact, Flipkart itself was unable to keep up its profits in spite of operating for a decade. Flipkart reported losses up to Rs. 8,770 crore last year. The Walmart – Flipkart partnership will positively impact the packaging, logistics and warehousing industries. These sectors are likely to witness growth, in addition to becoming more organized and automated. Their ability to employ skilled and unskilled labor will also expand. Ripple Effect on Real estate Good e-commerce requires a strongly integrated value chain, which apart from benefiting customers and suppliers also generates growth for supplementary industries. This creates an entire ecosystem that can grow holistically. Reports maintain that Walmart will pour a considerable amount of its proposed investment in Flipkart into building infrastructure. This could include warehouses, food parks, cold chain, sorting and quality checking facilities and collection centers. Flipkart already has 21 warehouses across the country. The aim of every brand is to have its presence everywhere. Companies are achieving this through omnichannel retailing, which offers consumers an integrated experience across online and offline channels. Walmart has the infrastructure to implement its omnichannel approach. Flipkart’s local experience and customer understanding will only complement Walmart’s established omnichannel retail expertise and supply-chain experience. Walmart may also look to apply its ‘click and collect’ strategy in India, which is its biggest advantage in the United States. It allows customers to place an online order and then pick it up at a store in a couple of hours for no extra charges. In this case, Walmart will open its own stores in the country, which will also serve as warehouses that can assist in deliveries. The recent investment will have retail giants restocking their arsenal in order to compete with each other. Global e-commerce players will be keen on deploying valuable local players through consolidation and investments. Smaller homegrown e-retailers will up the ante with improved organization and creative selling. Of all the categories, warehousing will be witnessing the highest investment of over Rs 35,000 crore in the next 3 years, mostly in creating storage facilities for retail and consumer goods.The cold storage and agricultural warehousing would see about Rs 7,500 croreinvestments. It will be interesting to see who will rule the roost in the world’s third-largest economy.As per industry analysts, Walmart isn’t here for the value that Flipkart is offering now, but for the next 15-20 years for which it will have to focus on the logistics, infrastructure, last-mile delivery, warehousing and so on. The consultant attributed the implementation of GST and the rapid growth of e-commerce as two important factors that have created a significant growth prospects in warehousing sector."Warehouse and logistics is one of the biggest growth areas that have emerged in recent times. We have seen Rs 125,000 crore invested through private equity in warehousing space since 2014. While it made up about 10 per cent of total PE investment in 2017, the share is expected to grow claiming larger share of investment, as per JLL India.
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