Flipkart’s bringing in the big guns.
India’s leading e-commerce company looks set to team up with Walmart Inc., garnering the startup a valuation of as much as $20 billion in return for a stake that could be as large as 20%, Bloomberg’s Saritha Rai reported on Friday.
There’s a lot that Flipkart Online Services Pvt could do with around $4 billion in cash. More to the point, having a giant like Walmart in its corner will go a long way toward fending off Amazon.com Inc., which itself has pledged to spend $5 billion in the world’s second-most-populous country.
There was a time when Snapdeal.com would rate a mention in the competitive landscape, but the decision of its founders to veto a merger with Flipkart — engineered by SoftBank Group Corp. — relegates that outfit to the sidelines. Eighteen months ago, there was talk of Walmart pumping $1 billion into Flipkart in a move that would have merely inflamed the market. Today, a much bigger investment in what’s almost a two-horse race makes more sense.
With Amazon’s rise in the US putting the brakes on Walmart’s revenue growth, which has averaged 3.4% annually over the past decade from 12.8% the prior 10 years, the bricks-and-mortar retailer needs to find fresh ways to fend off The Everything Store. Amazon has little footing in China, which leaves India and its huge middle class. A deal that Walmart signed with Bharti Enterprises Pvt over a decade ago hasn’t amounted to much, so tapping an e-commerce startup is smart.
Cash isn’t everything to Flipkart. What it can really gain from having a big brother like Walmart is access to a much wider catalog of products, and the negotiating power that comes with $360 million in annual spending. Few suppliers globally don’t hope to sell to Walmart, and with such a tie-up, Flipkart would be on most VIP lists. Walmart would also be aware of the benefits, not least the chance to boost revenue after four years of sub-2% growth.
If this deal goes through, you may well expect Flipkart to Save Money, and Walmart to Live Better. Bloomberg Gadfly