Flipkart bets on offline retail, may buy stake in Future Lifestyle Fashions

India's largest online retailer is in talks to acquire 8-10 per cent stake in Future Lifestyle Fashions

India's largest e-commerce marketplace Flipkart is looking to follow in the footsteps of its global rival Amazon and acquire stake in Future Lifestyle Fashions, one of the country’s leading offline fashion and lifestyle retailers.

Last month, the US online retailer had acquired a 5 per cent stake in Shoppers Stop for Rs 179.25 crore, leading to a deal where the offline retailer would sell its products exclusively on Amazon.

The Economic Times reported on Wednesday that Flipkart was looking to acquire 8-10 per cent stake in Future Lifestyle Fashions, a listed entity floated by Kishor Biyani’s Future Group. Leaders from the two companies met in Mumbai last week, but nothing has been finalised yet.

Flipkart’s move to build synergies with Future Lifestyle Fashion could be for the same reasons why Amazon invested in Shoppers Stop. Flipkart might be able to lock FLF’s 20-odd fashion brands exclusively on its platform and use recall of outlets such as Central, Brand Factory and Planet Sports to win consumer trust.

If the deal does go through, it could be a big boost for Flipkart’s fashion-focused subsidiary Myntra, which is aiming to become profitable at an EBITDA level by March next year. At a current market cap of around $1 billion, Flipkart could end up paying over $100 million to acquire 10 per cent stake in Future Lifestyle Fashions.

Typically, in such deals, the buyers end up paying a premium for each share, with ET reporting that Biyani could demand as much as a 25 per cent premium from Flipkart.

Flipkart, which is flush with cash after raising nearly $3 billion over two funding rounds from Tencent and Softbank this year, is looking at deals that will help it improve margins. Moreover, with the global e-commerce space abuzz with omni channel being the next big thing, Flipkart probably sees the investment as a good way to secure its offline play.

While the deal, for now, is largely fashion focused, the Future Group is among the largest retailers in the country, with a presence in grocery, electronics, home furnishings and furniture categories. Groceries, in particular, has become a major focus area for e-commerce marketplaces as they looking to get customers to make repeat orders with them.

Amazon, which is looking to make it big in India’s online grocery delivery space with Amazon Now and Pantry, has partnered with large format offline retailers to enable it. It wouldn’t be far-fetched to see more financial deals between online and offline players.