The Indian e-commerce market is pandemic about the wrestle between Amazon and Walmart. Who finally will dominate the Indian online retail space? Amazon, after giving a tough competition to Flipkart since it infiltrated the Indian market in 2012, is trying hard to buy a majority stake in the largest e-commerce retailer Flipkart.
Amazon created a buzz by announcing a ‘breakup fee’ of around $2 billion while Walmart has offered a hefty amount to Flipkart in order to enter the Indian markets. Reports say that Walmart-Flipkart will join hands lately by June end.
While Flipkart, Amazon, and Walmart have not answered to queries by media outlets officially, speculations and expert opinions are trending on the web.
Flipkart was started by former Amazon left-offs Sachin Bansal and Binny Bansal back in 2007. There was a time in 2015 when Flipkart was valued over $15 billion. However, the firm has been incurring losses since its inception as an online book retailer. Moreover, the current valuation has been $11.6 bn which is 26 percent less than its all-time high.
Flipkart has tried to change its situation by appointing Kalyan Krishnamurthy as Head of Business in 2016, but situations have been such that it lost more than 8,000 crores INR in FY2017.
As such, Gaurav Agnihotri, an expert on business matters shares his views on Seeking Alpha that Amazon should keep itself apart from the deal with Flipkart, and let Walmart go on with the join.
“If Amazon somehow does end up buying a majority stake in Flipkart, it will be taking an additional burden of a company that is surviving on foreign investors’ money,” Gaurav writes. “Besides, Amazon will also have to invest additional capital in strengthening Flipkart’s inferior supply chain, data analytics and seller management process.”
Amazon is in a dilemma. If it lets go the deal and Flipkart joins hands with Walmart, Amazon will face a real tough competition from Walmart’s finance surplus. On the other side of the story, if Amazon is successful in buying a majority stock in Flipkart, it will have a burden and a cash burning machine in its hands.
However, if Mr Bezos has some different plans and able to handle Flipkart well, Amazon could fortify the Indian e-commerce market with enhanced deliveries and better products, while enjoying direct access to billions of customers.
Flipkart has been outselling Amazon continuously since 2013. Events such as Diwali sales and Festive offers has always been in the favour of Flipkart. Despite all the losses, the Gross Merchandise Value of Flipkart has always been greater than that of Amazon in India.
One can conclude from the bets placed on Flipkart in the range of $20 billion that Amazon accepts that it hasn’t been successful in winning the competition in India.
Livemint reports that Amazon has plans to supply hefty funds into its efforts to capture Indian market space. Jeff Bezos has forwarded $5.5 billion to increase presence in India. Amit Agarwal, Amazon India chief has prepped the site to make it more converting and attractive to Indian consumers.
Flipkart’s low prices and massive local reach is the cause of concern for Amazon. Flipkart has been able to outnumber Amazon with its deals on smartphones. With exclusive brand tie-ups and limited time offers, Flipkart has forced Amazon to drop its prices on smartphones and increase its range in smartphone choices to more than 150.
“Smartphones continue to be one of the biggest categories and Amazon has become the destination of choice for customers as well as brands,” Noor Patel, director of smartphones category management at Amazon spoke to Livemint.
Apart from the smartphone segment, Amazon has considerably lost to Flipkart in the fashion category. With the acquisition of Jabong and Myntra for $70 mn and $300 mn respectively, Flipkart has overgrown its fashion stock significantly.
Experts analyze that if Flipkart and Amazon merge, the alliance will be scrutinized by the Competition Commission of India because any deal involves with ventures exceeding ₹6,000 crores or assets amounting ₹2,000 cores or more, it is mandatory to get an approval by CCI.
Deepika Sawhney, a partner at Corporate Professionals spoke to Economic Times, The market share of a merger this big can bring about a position so dominant that it can presumably be abused. They cannot go ahead with the deal without seeking prior approval of CCI and that will depend on how well they present their case in a convincing manner that their dominant position will not be misused.”
Flipkart is in love with Walmart because a merger with the venture is likely to be smoother than with Amazon. Walmart is an entrant and would have to go through lesser regulations as it doesn’t have any presence in India.
If Walmart gets the stake, it can compensate the losing customers to Amazon’s online retail in the US by getting access to 1.3 billion customers in India. After the United States and China, India is the next big thing in online commerce.
Reports also say that Flipkart’s largest shareholder and investor SoftBank favours Amazon because of its success in e-commerce. After Softbank, Tiger Global Management and South African firm Naspers Ltd. are the biggest stakeholders in Flipkart.
As the media awaits and we too, with a feeling of excitement for what could be the biggest deal in Indian business history.