Major stake of Flipkart sold to Walmart

Major stake of Flipkart sold to Walmart

The head of Japanese technology company SoftBank Group Corp. says it has reached an agreement to sell its stake in Indian e-commerce company Flipkart to Walmart.

Launched in 2007 and envisioned as the Amazon of India before the latter came to India, Flipkart owns countrys largest online fashion retailers - Myntra and Jabong - both of which it had acquired.

Walmart's acquisition changes that dynamic. Therefore, an ironic outcome of this deal is that Indian consumers are going to be subsidised by Walmart's American shareholders even as the United States government challenges India at WTO over its subsidies to farmers and exporters. "Further, Flipkart and Walmart will maintain distinct brands and operating structures post this investment", Krishnamurthy wrote to sellers in a mail.

"It's typical of a business like this that, as you scale up, you will have losses".

The deal is also Walmart's biggest bet in foreign markets, where it has historically struggled. It's easy to get wrapped up in the excitement of Amazon being the most exciting, and now largest, company ever; but Walmart's operational excellence and deep war chest are nothing to sneeze at. CEO Bob van Dijk says the group made a decision to sell because with Walmart running the show it will have little influence in future "and we're not a financial investor".

Capturing a share of this growing market via Flipkart will be Walmart's best chance of establishing its foothold in India, especially after the Chinese opportunity is already taken and its arch rival Amazon has a very strong grip in the US.

"We've been looking at this business for some time". Walmart International president Judith Mckenna and Dirk Van den Berghe, executive VP and regional CEO, Walmart Canada and Asia, are also expected to become directors.

The move put an end to weeks of market speculation, and was announced after SoftBank CEO, Masayoshi Son, apparently leaked the news during his company's earnings briefing in Tokyo.

E-commerce sales in India hit $21 billion (roughly Rs. 1.41 lakh crores) a year ago according to market research company Forrester, and are expected to soar as its population of 1.25 billion people make greater use of internet access. "Even so, the company would retain clear majority ownership", Walmart said.

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Starting May 9th, when the deal was officially announced, Indian e-commerce sector will be known by these two definitions: Era before May 9th and Era after May 9th. This deal also has massive ramifications for several stakeholders across the board.

Interestingly, Amazon had been considering making its own offer for the Indian firm as well, but it looks like Walmart beat them to it. The $16 billion deal will see only $2 billion fresh inflow into the company.

This will give the U.S. retailer access to the Indian e-commerce market, that is estimated to grow to $200 billion within a decade.

"While eCommerce is still a relatively small part of retail in India, we see great potential to grow". Walmart now operates just 20 stores in the wholesale segment which sell only to small businesses. For its fiscal year, ended 31 March, Flipkart generated USD$7.5bn (£5.54bn) in gross merchandise volume and net sales of USD$4.6bn (£3.4bn).

Last month, the company agreed to cede control of its United Kingdom grocery chain, Asda, merging it with British rival J Sainsbury Plc.

Taking in additional funding might lead to a reduction of Walmart's stake.

Flipkart competes with Amazon across a range of product categories.

A marketplace model allows companies like Flipkart to act as aggregators to third party merchants who can sell via the online firm's platform.

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