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Focus on Amazon's Reliance Offer: Indian Retail Game Levels Up

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The retail sector in India is booming driven by changing taste and preferences of customers, demographic profile, urbanization andstructural changes. Further, retail development such as opening of supermarkets not only in big cities but also small ones and towns is making the sector far more alluring.

Moreover, promising e-commerce market courtesy of an explosion in Internet and smartphone usage, and ongoing digitization has been driving the retail sector in India.

Given this upbeat scenario, the e-commerce behemoth Amazon (AMZN - Free Report) , which has been making every effort to expand both online and offline presence in this particular sector, is expected to up the level of competition with the offer it has received from Reliance Industries.

Reportedly, Reliance is considering selling 40% stake worth $20 billion in its retail arm — Reliance Retail (nation’s largest retail chain with 12,000 stores) — Amazon. The e-commerce giant, in turn, has expressed its interest in the deal and is in discussion terms right now.

If the deal materializes, it would be highly beneficial for Amazon’s retail presence in India, which holds promise.

According to India Brand Equity Foundation report, this particular sector, which is one of the fastest growing in the world, is expected to hit $1.1 trillion in 2020. Further, the report suggests that online retail, which has become an integral part of the retail industryof India, is expected to reach $99 billion by 2024 at a CAGR of 27% between 2019 and 2024.

With this upside potential, India is witnessing an influx of investments not only from Amazon but from other major overseas companies, namely Walmart (WMT - Free Report) , eBay (EBAY - Free Report) , Facebook (FB - Free Report) despite stringent antitrust regulations in the country.

Consequently, competition in the retail industry of India is intensifying with increasing initiatives by the aforementioned companies.

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How Can AMZN Gain From Reliance Deal?

If the Reliance Retail deal materializes, it is likely to be a game changer for Amazon. Notably, growing efforts of Reliance inboth online and offline retail markets of the country have been intensifying the competition to a great extent, thus becoming a potent threat to companies including Amazon.

However, the retail rivalry between Amazon and Reliance would come to an end if the latest deal happens. This will be crucial for Amazon. The latter will help the former in reaching out to a large chunk of customers who are still hesitant about shopping online. Reliance will give a brick-and-mortar exposure to Amazon.

This, in turn, is anticipated to help Amazon in rapidly penetrating the retail space of India.

Moreover, Amazon’s aggressive stance remain noteworthy in his regard. The Zacks Rank #3 (Hold) company had committed to an investment of $1billion in India earlier this year at the Smbhav summit. With this $1-billion worth of investment, the company aims at building digital centers across 100 Indian cities and villages. This will aid Amazon in strengthening its online retail business in the country by expanding seller base and product offerings.

The company has also partnered with thousands of mom-and-pop stores (popularly known as Kirana stores) in India to utilize them as its delivery points. These partnerships are driving Amazon’s momentum across the country’s shoppers and mom-and-pop shops. Consequently, this is bolstering the company’s presence in retail space of India, which holds immense prospects.

Further, Amazon’s long-term agreement with Future Retail that will authorize it as the official online sales channel for Future’s retail stores remains a major positive.Furthermore, the company has given its consent to acquire 49% stakecomprising both voting and non-voting shares in Future Coupons, a Future Group entity.

Additionally, the company’s acquired 49% in More — a food and grocery supermarket chain — is a major positive. Amazon also owns 5% in Shoppers Stop.

What’s WMT Doing?

Walmart, which made its major strategic move by acquiring Flipkart to strengthen its competitive position against Amazon, is still looking to aggressively expand in the retail industry of India.

The company has recently made another development pertaining to this industry — the takeover of Wal-Mart India Private Limited by Flipkart. This buyout comes as part of Flipkart’s plans to launch a digital marketplace —Flipkart Wholesale.

Moreover, this acquisition is expected to enhance Walmart’s footprint in India. Further, this will enable Flipkart to better serve kiranas, and medium and small enterprises (MSME), which are integral to the retail space of the country.

Further, Walmart, which carries a Zacks Rank #3, has unveiled a supplier development program in the country called Walmart Vriddhi Supplier Development Program with focus on Indian MSME.

Walmart attempts to train 50,000 MSMEs by establishing 25 institutes around manufacturing clusters across the country within the next five years with its latest endeavor.

How EBAY & FB Are Positioned?

eBay and Facebook are also in fray to acquire share in the promising retail sector of Indian on the back of their e-commerce initiatives.

Notably, eBay re-entered the online retail space of India through its country-based website. Further, this Zacks #3 Ranked company acquired a 5.5% stake in Paytm Mall, which is gaining traction in the country.

Meanwhile, Facebook’s growing interest in e-commerce market of India remains noteworthy. This Zacks Rank #2 (Buy) company has recently announced an investment of $5.7 billion to buy a 10% stake in Jio Platforms. The deal is likely to bring together Facebook’s WhatsApp and JioMart — a joint venture between Jio and Reliance Retail — to enable people to connect with businesses.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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