By Ulvi Hagverdi
Your commercial awareness dose!
Flipkart, India’s largest e-commerce company, was founded in 2007 by Sachin Bansal and Binny in 2007. They were both the alumni of Indian Institute of Technology, Delhi and former workers of Amazon. Initially, the company only focused on book sales, like Jeff Bezos’s Amazon, before expanding its services for other products like fashion, home-essentials, consumer electronics, and groceries.
As in February 2015, the company was shipping 8 million units per month. It became India’s most valuable company in just 10 years, which was started with only a two-bedroom apartment. eBay selling its India subsidiary eBay.in to Flipkart and making a $500 million investment in Flipkart on top of the acquisition in 2017 also attracted a significant amount of global attention.
COVID-19.
As one of the biggest economies in the world, India was also severely impacted by the coronavirus breakout. The recent net sales of Flipkart have decreased during the ongoing lockdown in India from March 25, due to the restriction of deliveries of essential products. As soon as the restrictions were lifted from green and orange zones at the start of May, the supply of products became much easier and thus an increase in profit was recorded.
The stores in China are also reopening, and the operations are stabilizing. Flipkart and other Indian e-commerce giants welcome these developments as supply chain from China plays a crucial role in their operations. Following the restrictions being lifted from red zones outside of the containment zone, Flipkart recorded $10.7 billion rise in revenue, rising its total revenue for the second quarter to $134.6 billion.
Walmart acquisition.
In May 2018, Walmart, an American multinational retail corporation, officially announced its intent to acquire Flipkart, and the acquisition was completed on August 18th 2018. Walmart announced the completion of a $16 billion investment in the company. It took 77% share of Flipkart and became the majority shareholder.
Although Walmart lacked in e-commerce, it had a strong physical base in retail space globally. The acquisition of Flipkart by Walmart took it in the race to compete with Amazon. It is stipulated that the purchase of Flipkart by Walmart will boost the Indian economy alongside Walmart’s profits.
It is notable that the Indian e-commerce market is expected to experience better productivity and broad-based growth, given the last year’s economic growth in the Indian economy. Nevertheless, the country’s economy was facing liquidity issues due to the government’s wrong demonetization and Gross sales Tax policies.
Myntra, a well-established online fashion store in India is also acquired by Walmart ultimately, as it was bought by Flipkart in 2014. This deal is therefore expected to increase the stake of Premji Invest, a leading Indian private equity and venture capital firm, up to 4 times. The gain is estimated to be more than $130 million for the investment of $25 million, leading to the flow of fund in the Indian economy.
Thus, a vast pool of investments from India is stipulated given the publicity of the Walmart’s acquisiton. It can also be predicted that Walmart will expand supply chain arm by partnering with around 100,00 family-owned small businesses in India, resulting in an increase in small stores’ presence.
Subsequently, brick and mortar stores are expected to shut down due to competitive pressure because Walmart labels may replace the domestic Medium and Small Size enterprises. Inefficiency can be expected due to price-cutting by small stores at the cost of profitability and viability.
Many traders have also warned the government of pan India protests. This can lead to damaged infrastructure and the economy, creating social chaos. Some locals are also cautious about the foreign retail giants sharing the data of Indian shoppers which can be used to control the domestic value chain.
To sum up, it can be said that Flipkart’s acquisition by Walmart creates an exciting opportunity for the American company, given the profound economic growth in India. Flipkart and India’s e-commerce industry will also potentially benefit from the vast pool of investors brought by Walmart acquisition.
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