Flipkart-Walmart potential deal underpins gap in India's retail market

Amazon isn't only looking to combat Amazon in the e-commerce space with this deal, but also wants to make inroads into India's underpenetrated offline retail market

As the deal which could see US retail giant Walmart investing as much as $10 billion for a majority stake in Indian e-commerce major Flipkart nears fruition, all eyes are focused on how Walmart executes its online-to-offline plan in the country.

Considered to be a major proponent of the deal, Walmart is looking at Flipkart as a partner not just to combat rival Amazon in the e-commerce space, but also as a way for it to make inroads into India’s underpenetrated offline retail market.

Sources privy to information of the deal confirm that Walmart is pushing to acquire 51 per cent stake in Flipkart over a period of time. The deal will provide exits to several of the company’s early investors such as Accel Partners, Tiger Global, Naspers and IDG Ventures.

“It’s going to be great for guys like Accel Partners and Tiger Global. This is what they’ve been waiting for as they’ve been investing for years now and must show returns to their LPs. From Walmart’s perspective, Flipkart is the ideal candidate because it sits between Amazon and Alibaba,” said Manish Maheshwari, former head of Flipkart’s marketplace business.

Other experts also say that with such a large commitment in India, the US giant isn’t going to merely focus on winning the five percent of India’s overall retail market that e-commerce currently makes up. There’s still a lot of headroom for large format offline retail to grow in India over the next 20-30 years and is squarely something that Walmart is targeting.

This would mean Flipkart won’t be going up against just Amazon or Paytm anymore, but also behemoths such as Reliance, Tata, Future Group and D-Mart among others. For Flipkart, the deal could fundamentally restructure the company from being an online player to being a retailer that sells both online and offline.

“It makes sense for Walmart to take majority stake in Flipkart because they’re looking at them as a partner to get access to India’s retail market, not just the e-commerce market. Walmart already has some of the best practices when it comes to sourcing and picking right store locations, etc, and their entry into Indian retail will be huge,” says Harminder Sahni, founder and MD at Wazir Advisor.