Flipkart on Tuesday vehemently refuted the claim of a Morgan Stanley report which said Walmart may exit its investment in Flipkart and the Indian market due to the negative impact of new rules for the e-commerce that came into force on February 1.
“The report couldn’t be further than the truth. Walmart remains extremely confident about the potential of the Indian market and in Flipkart’s ability to lead the e-commerce space,” Flipkart chief executive officer Kalyan Krishnamurthy said in an internal communication to its employees.
Business Standard has seen a copy of the email.
Morgan Stanley had said Walmart may consider walking away from India, similar to what Amazon did in China in 2017, as the new rules have increased the costs of business and added to long-term uncertainty. “An exit is likely not completely out of the question with the India e-commerce market becoming more complicated,” the report said, adding that Flipkart's losses may rise 20%-25%, which may potentially have a bearing on Walmart's results in the upcoming quarters.
In May last year, the US retailer bought a 77 per cent stake in Flipkart for $16 billion in one of the biggest takeover in e-commerce space in the world.
“By partnering with Flipkart, Walmart has taken a long term view of the opportunities and hence is unfazed with any short-term hurdles,” Krishnamurthy told the employees.
Several policy changes in the sector show Indian government’s intent that e-commerce platform should operate as pure-play marketplaces, giving equal opportunity to small vendors. Last month, the government tightened the noose through hard-hitting changes to policy. It said that vendors that have ownership by the e-commerce marketplace cannot sell on the platform; platforms cannot sell private label products and put limitations to sales by their business-to-business (B2B) units.
From February 1, Amazon has removed its Amazon Basics line of products while Flipkart has taken down its private labels in the grocery. Amazon Pantry, the vegetable division, has gone offline, while Flipkart and Amazon affiliated seller, WS Retail and Cloudtail, have pulled out. Currently, legal teams of these companies are hard at work reviewing the business structure to comply with the norms.
Analysts say these will be short term impact on the business, including sales, and it may take about three months to comply with the regulations. Long-term impact seems minimal, except for lesser control on the inventory and discounts.