Retailer joins others for 75% stake in online marketplace
Flipkart; Alphabet also on board
By Corinne Abrams, Sarah Nassauer and Douglas MacMillan
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (May 5, 2018).
MUMBAI -- Walmart Inc.'s battle with Amazon.com Inc. is heading
to India.
Walmart is leading a group that will invest about $15 billion
for a roughly 75% stake in Flipkart Group, India's largest
e-commerce company, according to people familiar with the matter.
Google parent Alphabet Inc. is planning to invest in Flipkart as
part of the deal, other people familiar with the situation
said.
It would be a big bet by Walmart that India will be a source of
growth at a time when Amazon is gaining ground in the country. It
is also an effort by Google to keep Amazon from potentially
acquiring Flipkart itself.
Flipkart, which was started by two former Amazon employees in
2007, has already raised billions from investors including SoftBank
Group Corp., Tencent Holdings Ltd., and Microsoft Corp. It sells
everything from sofas to shoes and smartphones.
Flipkart's board has approved the transaction, which values the
startup at $20 billion before the investment, one person said.
Walmart would control the company if the deal is completed, the
person said. Flipkart said it was valued at $11.6 billion in a
funding round last April.
Bloomberg reported earlier Friday that the Flipkart board had
approved an agreement to sell about 75% to a Walmart-led group for
around $15 billion.
The agreement would be Walmart's largest deal since its purchase
of U.K. retailer Asda for $10.8 billion in 1999. Earlier this week,
Walmart agreed to sell Asda to a U.K. supermarket rival, a move
that raised almost GBP3 billion ($4 billion) in cash. Walmart is
also in talks to sell a controlling stake in its Brazil operations,
people familiar with the matter have said.
The potential Flipkart deal opens another front in Walmart's
battle with Amazon as it also invests heavily to grow online in the
U.S., where it earns the majority of sales. Walmart has grown
slowly in India with stores for years and held talks with Indian
e-commerce startups that didn't lead to an investment.
In part, Walmart's move is defensive. Though online buying makes
up a small percentage of the Indian retail landscape, it is
expected to grow quickly. Amazon founder Jeff Bezos has pledged to
invest $5 billion in India, and the U.S. titan has made rapid gains
against Flipkart since its 2013 launch.
"We estimate that India makes up a material portion of the
'other' international retail business, which is expected to drive
30% of Amazon's total retail revenue growth over the next 3 years,"
said Brian Nowak, an analyst at Morgan Stanley in a recent note on
the potential deal.
Walmart executives have indicated they plan to compete. "India
is a market, over time, that I think, whether it's 10 years, 20
years, 30 years from now, we'll be glad we're in India, and I think
there's a lot of growth opportunities there," said Walmart Chief
Financial Officer Brett Biggs last summer. Walmart CEO Doug
McMillon said India is a key growth market for the company, along
with North America and China during a February earnings call.
Blocked by tight regulations from selling products directly to
consumers, Walmart opened its first wholesale outlets in India in
2009 amid hopes that it would eventually be allowed to open
consumer-facing stores. Instead it's opened 21 Best Price wholesale
stores, with plans to open 50 more. The member-only stores resemble
U.S. warehouse chains like Costco and Sam's Club, but are only open
to licensed businesses owners to comply with government
regulations.
As Walmart's store footprint grew slowly, India's e-commerce
start-ups proliferated. In 2011, Walmart executives traveled to
India to talk with several e-commerce startups about the market,
including Snapdeal.com, another large e-commerce retailer, said a
person familiar with Walmart's efforts.
Then in 2016, as Amazon rapidly grew in India and local players
sparred for funding, Walmart spoke with Flipkart about a potential
investment.
The total Indian retail market already accounts for more than
$800 billion a year in sales and is headed north of $1 trillion in
the next two years, according to research firm Forrester, but most
sales are fragmented between small mom-and-pop retailers and
brands.
Marks & Spencer, Zara, H&M and others global brands have
set up physical shops. IKEA says it will open in India soon. These
retailers are allowed in because they only sell their own products.
Foreign-owned companies aren't allowed to sell others' brands,
which is why it is tough for Walmart to do business here.
Online retail, however, provides an opening. Seattle-based
Amazon gets around restrictions by acting as a marketplace only.
Its website sells third-party products, providing the tech and
logistical support for a fee.
Amazon is now the second-largest Indian e-commerce company after
Flipkart by sales made through its website, kicking homegrown
e-commerce company Snapdeal off that perch, according to some
analysts. Softbank, an investor in both Flipkart and Snapdeal, had
pushed the firms to merge last year without success.
A Walmart investment in Flipkart would show "further
consolidation of the forces against Amazon," said Satish Meena, an
analyst at Forrester. Flipkart last year raised $1.4 billion from
Microsoft, eBay Inc. and Tencent. In August it raised about $2.5
billion from SoftBank.
Online retail in India is small compared with other growing
markets like China and the U.S., but it's expected to grow quickly
as shoppers become more comfortable paying online. Online retail in
India was worth about $20 billion last year but should rise to $35
billion by 2019, according to Forrester. China had $935 billion in
online sales last year, and the U.S. $459 billion.
"It makes sense for both Flipkart and Walmart," Mr. Meena said
of a potential deal. Flipkart would benefit from Walmart's
experience in brick-and-mortar retail, which would be useful should
Flipkart wish to push into physical sales of items like
groceries.
It would give Walmart "a good foothold in the Indian market," he
said. "It's not a market they want to miss."
--Newley Purnell contributed to this article.
Write to Corinne Abrams at corinne.abrams@wsj.com, Sarah
Nassauer at sarah.nassauer@wsj.com and Douglas MacMillan at
douglas.macmillan@wsj.com
(END) Dow Jones Newswires
May 05, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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