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What the Flipkart Deal Means to Walmart and Amazon

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The fight over who will acquire a majority stake in India’s e-commerce retail giant Flipkart is intensifying. According to reports, Walmart Inc. (WMT - Free Report) is already in advanced talks to acquire a 51% stake in Flipkart. On the other hand, Amazon.com, Inc. (AMZN - Free Report) too is leaving no stone unturned to capture a significant stake in the company. So much so that Amazon reportedly has offered a breakup fee of nearly $1-$2 billion as part of its bid to acquire a considerable stake in Flipkart. That said, it is too early to predict who will have the last laugh, as none of the three companies have yet commented on this.

However, the big question is how much does Flipkart matter to Amazon and Walmart. It surely does, given that Flipkart is the biggest e-commerce company in India and has an enviable customer base in that country, it will only strengthen the presence of both Amazon and Walmart in this vast market. Understandably, India is a lucrative market for both Amazon and Walmart, which are fighting hard to take a lead in the retail race much like every in other country.

Flipkart to Help Build Stronger Presence

Flipkart is the world’s third-most funded private company and one of the most successful Indian e-commerce startups. The company has raised more than $7 billion from a number of global investors such as Softbank, Morgan Stanley (MS - Free Report) and DST Global and has completed quite a significant number of acquisitions in the past few years, thus making it a name synonymous with retail e-commerce in India. For Amazon and Walmart, a stake in Flipkart definitely means a lot, as they will get to operate in a lucrative market.

In fact, Flipkart to Indians is much like Amazon and is the biggest e-commerce company. Amazon, on the other hand is the second biggest. Flipkart has overtaken the likes of Snapdeal and other e-commerce companies in India within 10 years of its inception and is clearly ahead of others including Amazon. Understandably, Amazon stands to benefit if it succeeds in acquiring a considerable stake in Flipkart and it will also end the rivalry between the two companies in India. Walmart, on the other hand, too will benefit as it is striving hard to compete with its biggest rival Amazon in the e-commerce space.

Moreover, one of the biggest reasons behind Flipkart’s success has been the cash-on-delivery model of business, a feature that has struck a chord with shoppers. Today, most e-commerce companies in India have adopted this model, which has helped them earn the trust of consumers, thereby increasing their revenues.

Amazon and Walmart’s India Presence to Get a Boost

Globally, Amazon is clearly ahead of other retail giants like Walmart, Target Corporation (TGT - Free Report) Dollar General (DG - Free Report) and Dollar Tree (DLTR - Free Report) in the e-commerce race. However, Walmart continues to be its closest rivals given that the brick-and-mortar giant is making fast moves to make its online presence felt. Undoubtedly, adding Flipkart will only strengthen Amazon online dominance and at the same time take the competition to the global arena.

Moreover, Amazon is the second largest e-commerce company in India and a major reason behind this is that Flipkart enjoys the trust of customers, a lot of which comes from its cash on delivery model of business. If Amazon happens to acquire a considerable stake in Flipkart, it will most likely put an end to this competition. Moreover, Flipkart already has a strong delivery arm much like Amazon has in the United States. This will help Amazon use Flipkart’s logistics wing and aid both the companies to focus more on increasing their revenues instead of competing. This will not only help Flipkart in strengthening its profits but also add muscle to its supply chain and aid in boosting its efficiency in procurement and product assortment

On the other hand, Walmart has a negligible presence in the estimated $670 billion retail market in India with a meager 21 wholesale stores, while it has no presence in the e-commerce space. The company has been trying hard to make its presence felt in the online retail market since 2014 and adding Flipkart will definitely help it expand its footprint in India. Moreover, Walmart’s failed joint venture with Bharti Enterprises of a 50:50 partnership to run the wholesale cash-and-carry business has left the company with no choice but to acquire an existing business. If the deal fall into place, it is likely to strengthen Walmart’s position against Amazon, by helping it leverage the large market Flipkart caters to. 

While Amazon sports a Zacks Rank #1 (Strong Buy), Walmart carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Summing up

Although nothing has been finalized yet, Flipkart definitely looks to be a lucrative proposition for both the companies given the huge retail market in India. Moreover, Flipkart too stands to benefit as the company has been incurring losses despite its mass appeal. While, for Walmart, acquiring a considerable stake in Flipkart will help the company get an edge of Amazon in the e-commerce space in India, for Amazon it will become easier to spread out and the same time focus more on its profits that competing with Flipkart in India.

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