Walmart Inc. must ratchet up pressure against rival Amazon.com Inc. to maintain its lead position in India's e-commerce market as both retail behemoths rapidly expand online operations in the South Asian nation, analysts say.
In 2018, Walmart bought a $16 billion majority stake in Flipkart Online Services Pvt. Ltd. giving it a foothold in the country's e-commerce market, which is set to grow to $200 billion by 2026. That figure is up from $48.5 billion as of 2018, according to the International Trade Administration.
But Amazon has become more of a threat, with the company investing an estimated $10 billion in commitments to India since launching its e-commerce site there in 2013, said R.J. Hottovy, Morningstar Inc.'s consumer equity strategist, in an interview.
Amazon is expected to continue investing heavily in the country, dedicating at least $1 billion annually to initiatives that include building out its growing Prime membership program, he said.
"Amazon has a blank-check approach to India right now, betting that its infrastructure and content investments will drive Prime membership growth and, eventually, increased member engagement," he said.
Flipkart is the largest online retailer in India, with a 31.9% market share in 2018, followed by Amazon at 31.2%, according to Forrester. After adding the market share of its fashion specialty sites Myntra and Jabong, Flipkart controls a 38.3% market share.
Walmart and Amazon did not respond to inquiries for this story.
International growth plans
The retailers' focus on India signals how important the country is to their international growth plans even as global sales have slowed. Walmart said it generated $120.82 billion in international sales for the company's fiscal year ending Jan. 31, 2019, down from $123.41 billion for the fiscal year ending Jan. 31, 2016.
The company's largest international markets in its most recent fiscal year were Mexico and Central America, which accounted for $31.79 billion in sales, followed by the United Kingdom, where the company generated $30.55 billion. Walmart's sales in China, the world's largest e-commerce market, were $10.7 billion.
Amazon's international sales have also slowed in recent years, but the company continues to pursue global markets including the lucrative Middle East and key markets such as Germany.
India represents a growth opportunity for both companies thanks to growing internet and smartphone usage. Even so, the majority of shopping in India is still done in person, making it essential for retailers to have both online and offline operations.
To encourage digital shopping, the companies compete online during the Indian holiday season each fall, with Flipkart holding its "Big Billion Days" online sale, which ran from Sept. 29 to Oct. 4. Amazon hosted its "Great Indian Festival" during the same period. The sales events compare with Singles Day in China and Black Friday in the U.S.
The U.S., where the e-commerce market is set to grow from $501 billion in 2018 to more than $740 billion in 2023, remains a battlefield for both retailers.
In September, Walmart upped its grocery game by announcing plans to expand grocery delivery to 1,400 U.S. stores this fall. This is the latest of several changes Walmart has made since Amazon bought Whole Foods Market Inc. in 2017 to expand its own physical footprint. Amazon is reportedly planning to roll out a string of new grocery stores across the U.S. Walmart has more than 5,000 store locations in the U.S., including Sam's Club stores.
Home team advantage
Walmart's stake in Flipkart gave it the advantage of working with a homegrown e-commerce pioneer that began as an online bookseller in 2007 and grew into a company that today offers 80 million products across categories ranging from fashion to furniture, analysts say.
"Walmart has a brand advantage with Flipkart, given that it's a local startup and has a local reach to it," said Himanshu Pal, a consultant with Kantar Consulting.
Prior to the Flipkart deal, Walmart lacked roots in the e-commerce market despite having entered India in 2007 through a venture with local conglomerate Bharti Enterprises to build out a line of stores under the name Best Price Modern Wholesale. The stores span about 50,000 square feet and provide business owners with fresh fruits and vegetables and non-food products including consumer packaged goods and general merchandise sold at wholesale prices. More than 90% of the store goods are locally sourced, helping to keep costs low for entrepreneurs.
When its relationship with Bharti ended in 2013, Walmart gained 100% ownership of the wholesale store line, which today has 27 locations.
Walmart announced in 2018 that it planned to invest $500 million to open 47 additional stores in India by 2022.
Walmart can leverage its line of physical stores to boost e-commerce operations in India by using them as fulfillment and distribution centers, analysts say.
"Stores are a weapon when building out an online business," Charlie O'Shea, Walmart analyst with Moody's, said in an interview. "You've got to have refrigerated trucks, you have to get the product to people quickly or it's going to spoil, and the store is a phenomenal asset from that perspective."
O'Shea added that the company can also use its expertise to help Flipkart open its own brick-and-mortar grocery stores in India. The Times of India reported May 22 that Flipkart planned to open physical stores to sell food items.
Walmart can also leverage Flipkart's eKart logistics business that delivers 10 million shipments per month to areas that include remote locations where infrastructure is poor.
"A lot of the things that retailers have learned in the U.S and other international markets probably aren't going to work here," O'Shea said. "Flipkart's management has expertise in India."
Amazon ramping up efforts
Amazon owns stakes in Indian brick-and-mortar retailers, including Mumbai-based Shoppers Stop Ltd., but is reportedly looking to expand its physical footprint.
According to a Sept. 25 report by the Economic Times of India, Amazon is eyeing a minority stake in value fashion chain Max from the Landmark Group, an attempt to increase its fashion market share in India.
The news outlet reported Aug. 1 that Amazon was looking to acquire up to a 26% stake in Indian retail operator Reliance Retail Ltd., which operates 10,644 stores across 6,700 cities.
Bloomberg News reported Aug. 13 that Amazon was in late-stage talks to acquire up to a 10% stake in India's Future Retail Ltd., a retailer that operates popular Indian chains such as Big Bazaar, Easy Day and Heritage Fresh.
According to a Sept. 23 Morningstar report, "Amazon's physical retail efforts in India could represent a way to distribute its Echo and other smart home hardware products" while adding several new subscription platforms.
One of the biggest threats to Flipkart is Amazon's Prime membership program, which launched in India in 2016. Analysts say it is a core element of Amazon's expansion strategy because it is designed to capture customers who are not only driven by price but also likely to transact more frequently for a wider range of products.
Indian consumers who sign up for Prime memberships pay 999 Indian rupees, or about $14, annually, for benefits such as unlimited free and fast delivery, Prime Video and Prime Music. In the U.S., Amazon offers an annual Prime membership for $119.
"You become the default shopping behavior," said Andrew Lipsman, principal analyst with eMarketer, in an interview. He added that Prime memberships get customers "locked in" to the habit of buying with Amazon online.
Amazon did not respond to inquiries about the number of Prime members it has in India. But Satish Meena, a senior forecast analyst with Forrester, said his firm estimates that the company has garnered between 11 million and 12 million active monthly users since 2016.
Meena believes there are few reasons for consumers to switch to "Flipkart Plus," a free membership loyalty program launched by Flipkart in 2018 that he says is "weak" in comparison to Amazon's Prime program and struggling to catch up in terms of offerings, despite new initiatives such as a video streaming service. Flipkart Plus also offers benefits such as free and fast delivery and early access to sales, according to the company.
The program, Meena said, is a "work in progress."
Regulations could be a barrier
The retailers also face new Indian regulations put in place this year that could hurt their competitive positions.
Starting Feb. 1, the Indian government put in place policies that prohibited foreign-funded platforms from selling products of entities they have equity stakes in, selling goods exclusively on their platforms, and influencing prices.
New regulations could force e-commerce companies to battle each other on attributes other than price, whether that means faster delivery or customer service, said Anindya Ghose, the Heinz Riehl Chair Professor of Business at New York University's Leonard N. Stern School of Business, who teaches a course on e-commerce, in an interview.
"They will have to go back to the drawing board and say, 'Look, we can't compete on price as we used to,'" he said.
As of Oct. 9, US$1 was equivalent to 71.1 Indian rupees.