With its $16 billion deal for Flipkart Online Services Pvt. Ltd., analysts expect Walmart Inc. to test the same playbook in India that has worked for the retail giant in the United States for decades.
The planned deal to acquire a 77% stake in Flipkart is Walmart's largest acquisition in the last decade. While the acquisition will cut into
But to put up a fight against Amazon in India, Walmart has to do more than pour money into the Indian e-commerce startup. Flipkart will need the playbook that has positioned Walmart as the top retailer in the world and a No. 2 competitor to Amazon online in the U.S., several analysts told S&P Global Market Intelligence.
Walmart's blueprint for growth in the U.S. centers on undercutting prices in suburban and rural markets, along with an ambitious strategy to combine e-commerce and physical stores. Amazon, by contrast, focuses on a core urban, millennial consumer and pure-play e-commerce, Oppenheimer analyst Rupesh Parikh said in an interview. So to help Flipkart scale India's largely untapped rural and suburban e-commerce market, Walmart needs to help build infrastructure that can deliver remote e-commerce orders, along with a network of physical locations — including stores, warehouses and other fulfillment centers — he said.
"That experience and the knowledge of how to build that infrastructure is going to open doors outside of urban India, which is more naturally Amazon's domain, and has the potential to be very profitable for [Walmart and Flipkart]," said Parikh.
Walmart is entering the Indian e-commerce market at a key time, according to Satish Meena, an analyst at Forrester. Forrester expects the Indian e-commerce market to more than triple in the coming years, reaching $73 billion by 2022 after hitting around $20 billion in 2017.
With that level of growth, both Flipkart and Amazon will look to expand rapidly in the country, he said.
"The upside is big for both Amazon and Flipkart in the next two decades," Meena said. "No other market, except China and the U.S., can compete in terms of total retail opportunity."
Flipkart and Amazon are starting off about even in terms of market share, Meena added. Flipkart controls around 32% of the Indian e-commerce market, while Amazon controls around 31%, according to Forrester data.
But when it comes to expanding that market share, the two companies will focus on different areas, Meena said. Flipkart has already made significant inroads in the apparel, home furnishings and accessories space, but it remains weak in other categories, such as grocery and basic consumer products, he said.
Grocery, in particular, is an area that Walmart can help bolster. Amazon has been selling groceries in India for the last year, while Flipkart has not rolled out the category, Meena said.
Walmart earns most of its U.S. revenue through grocery and has built a fleet of Walmart Neighborhood Markets throughout the U.S. The retailer names grocery as a key strategy for it e-commerce efforts going forward in the U.S.
Neil Stern, a retail consultant at consultancy firm McMillan Doolittle, also sees grocery as central to Walmart's strategy with Flipkart.
"It's a great example of where Walmart can bring more than its checkbook to bear on the Flipkart business," he said in an interview. "It's not easy to grow out a grocery business, and Walmart has experience it can lend to doing that."
Grocery is also an effective way to transition brick-and-mortar shoppers to e-commerce, especially in rural areas where consumers are unaccustomed to online shopping, Stern said. Grocery has contributed to a large portion of Walmart's e-commerce growth already, and it is easier to sell a grocery customer on buying more online than it is converting a physical-only shopper to an online one, he said.
"Walmart's already shown they can do this in the U.S., and it might be a long-term goal at this point in India, but those are the kinds of things Walmart can do to keep pace with Amazon at this point," he said.
Amazon and Walmart did not respond to a request for further comment on the Flipkart acquisition.
