Podcast | The A to Z of Flipkart and Walmart

Flipkart and Amazon have been duelling it out in India to become the largest, most successful online retailer. Flipkart has been around since 2007, despite almost screwing up their very first delivery order back when they sold only books.

The company sells a few things other than books now and is valued at roughly 12 billion dollars. Its big advantage is its large, decade-old database of customers since before many of the other players were even around.

On the other side is Amazon. Amazon is taking over online retailing in many markets across the globe, aside from China, which is Alibaba territory. Now there’s a funny sentence. Alibaba dominates the Chinese market. Not bad for a woodcutter from Persia. Time for another fun fact: Alibaba & The Forty Thieves was not part of the original Arabian Nights. It was added later by French translator Antoine Galland in the early 1700s. There is no Arabic manuscript of this story.

Back to Flipkart v Amazon. The American behemoth entered India in 2012 through Junglee.com. Remember its website which compared prices? It took Amazon another two years to kick things off. Flash forward 4 years and we’re in the thick of the Flipkart v Amazon battle for supremacy. Flipkart unseated Amazon as the leading online retailer last year.

Amazon then offered to acquire Flipkart! Talk about brazen! But Flipkart has found someone new – Walmart. That’s right, the biggest retailer in the world wants to land on Indian shores. Amazon’s rival, Walmart, wants a piece of the action and is in discussion with Flipkart to acquire up to 51 percent or more in the Indian ecommerce company. Some estimates in the media put this at 86 percent but that number does seem a bit farfetched.

Here are the facts and figures of this deal. The Indian ecommerce market is estimated to grow to USD 200 billion in a decade. Walmart, which has struggling to keep pace with the far more agile Amazon, has been in talks with Flipkart for months to acquire a controlling stake in the Indian company which has eleven rounds of funding totalling to up to USD 7.3 billion. Sources claimed the deal is being worked out at Bentonville, Walmart’s headquarters in the US.

The brick-and-mortar giant is figuring out regulations in Singapore, where Flipkart is registered. The retail giant, Walmart I mean, is said to have made a proposal to buy 51 percent or more in the company for between USD 10 billion and USD 12billion. There are now reports that this deal may come through even next week though earlier reports indicated June as a likely period of conclusion.

Sachin Bansal and Binny Bansal, the founders as well as the Chairman and ex-CEO respectively, are tipped to stay on in the company. One of them will consolidate his shares while the other plans to sell a portion.

Walmart is also said to be considering retaining other senior leaders. Reports have hinted that a major private equity investor, probably Tiger Global, is bargaining hard to remain at the helm of things in Flipkart. Tiger Global has a 20.5 percent stake in Flipkart and pumped close to USD 2 billion into Flipkart over the last seven years. Another investor, Naspers, is likely to offload its full 14.57 percent stake.

There are two theories floating about on what the other large investor, SoftBank, could do next. SoftBank holds 23.6 percent stake in Flipkart. While some sources claim Softbank may completely exit the company, many believe it will, for the moment, wait and watch. It may opt for only a partial exit. Softbank had invested more than USD 1 billion just a few months ago. The Walmart deal gives Softbank great returns - a USD 1 billion investment could give close to 5 to 6x returns in a mere 10 months, say some analysts.

So what is this acquisition all about? Walmart could be fighting for survival here. As Amazon grew, it was the death knell of every major retailer. Despite its size and scale, Walmart is no exception. When Amazon enters a market, competitors quit or die. And that’s an accurate assessment.

The “Death by Amazon” index, compiled by the Bespoke Investment Group, lists 54 retail stocks most hurt by Amazon’s online retail biz. Essentially, when facing down Amazon, retailers think - why fight a losing battle? Investors and entrepreneurs end up folding rather than doubling down on their business.

So, we have the old world retail giant taking on the might of Amazon in a potentially 200 billion dollar market where Amazon has been struggling to beat the competition. The Walmart-Flipkart deal is about Walmart acquiring that competition.