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April 30, 2018
Written By Jonathan Eley and Jim Pickard
Walmart to take 42% stake in combined group and £3bn in cash for selling British arm
MPs and analysts have warned of the prospect of thousands of job losses and the closure of scores of supermarkets as Britain’s competition regulator gears up for an extended investigation into J Sainsbury’s plans to take over Asda.
The UK’s second-biggest food retailer announced on Monday that it would take control of the Walmart subsidiary in a deal that would create Britain’s biggest grocer by market share.
US-based Walmart will receive almost £3bn in cash and 42 per cent of the combined business in return for selling Asda, whose equity is valued at £7.3bn under the terms of the agreement announced on Monday. It has agreed to hold no more than 29.9 per cent of the total voting rights in the combined business.
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Shares in Sainsbury’s rose 14.5 per cent to 309p on Monday. But politicians queued up to question the two groups’ commitment to close no stores and for no jobs to be lost.
Hilary Benn, MP for Leeds Central, said the pledge did not mean there would be no redundancies in the Yorkshire city where Asda was based, while Rachel Reeves, another Leeds MP and chair of the business select committee, said staff would be “incredibly concerned” about their future.
Rebecca Long-Bailey, shadow business secretary, said the CMA should examine the potential impact on suppliers “as a matter of urgency” and warned about the prospect of an “emerging monopoly”.
The two groups’ official position is that they do not expect to have to sell or close any stores as a result of the combination. Both brands will be maintained, as will Asda’s headquarters, and price cuts of up to 10 per cent on everyday items have been promised after completion.
The CMA said on Monday it was likely to review the combination and that “pre-notification” talks with the companies could last “a number of weeks” before the start of an initial “Phase 1” investigation.
Analysts were split over the prospect of enforced store disposals. “This deal could easily unravel acrimoniously if the CMA sticks to its old rules and parameters,” said Bruno Monteyne at Bernstein. Patrick O’Brien, research director at GlobalData, said his analysis showed at least 75 stores might need to be sold.
“I would hope they have taken good legal advice,” said one big shareholder in Sainsbury’s. “They clearly think they will get through. You would have thought they [the companies] would have been all over this [competition concern] like a rash.”
Sainsbury’s biggest shareholder, the Qatar Investment Authority, has publicly supported the takeover.
The deal marks an ambitious attempt to reshape the UK retail market, in which the traditional big four retailers — Tesco, Sainsbury’s, Asda and Wm Morrison — have come under pressure from German discount chains Lidl and Aldi in food, and from homegrown rivals along with internet retailers such as Amazon in general merchandise.
Based on their market shares, the combination of Sainsbury’s and Asda would control almost a third of the UK grocery market, putting it ahead of Tesco. The combined business will be chaired by Sainsbury’s chairman David Tyler and led by its chief executive Mike Coupe and chief financial officer Kevin O’Byrne. Asda will continue to be run from Leeds, with its own chief executive.
The transaction also reflects a rethink of UK strategy on the part of Walmart, which bought Asda for £6.7bn in 1999.
“We’ve been clear that we are going to be thoughtful and look at different ways of operating internationally. We no longer always need to be in control,” said Judith McKenna, president and chief executive of Walmart International.
Sainsbury’s brought forward its full-year results announcement from Wednesday. Underlying pre-tax profit for the year to March 10 was £589m, with the total dividend lifted 8 per cent to 10.2p. Profit expectations for 2018-19 were £629m, in line with current consensus forecasts.
It said the integration of Argos, acquired in 2016, was ahead of plan, with 280 Argos stores expected to be open in Sainsbury’s by the end of the current financial year, against a plan of 250. The £160m of expected synergies will be delivered six months early.
Source: ft
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April 28, 2018
Written By Sulekha Nair
The government is planning to finalise a framework for a national e-commerce policy in six months, to deal with issues relating to taxation, infrastructure, investment, technology transfer, data protection and regulation. India’s e-commerce sector is expected to grow to $200 billion by 2026, from $ 38.5 billion in 2017. India is dubbed as the fastest growing e-retail market in the world, thanks to increasing Internet penetration, a rise in smartphone usage, a large pool of millennial consumers and a growth in digital payments. Yet, there is no clear-cut policy on the burgeoning sector.
India does not have a national e-commerce policy and it does not have a consolidated legal framework to deal with it, Commerce Secretary Rita Teaotia has said. Therefore, a decision to set up a task force was taken during the first meeting of a think-tank of key stakeholders, constituted to finalise a framework for a national e-commerce policy. The think-tank is chaired by commerce and industry minister Suresh Prabhu.
The 70-member strong think tank includes representatives from Flipkart, Ola, Paytm, Bharti Enterprises, Reliance Jio, TCS, Wipro, MakeMyTrip, Urban Clap, JustDial, PepperFry, Practo, among others. But brick and mortar players do not find a mention in that list, and nor do Amazon, Google, Uber and Facebook. “The government should include brick and mortar players in the think-tank,” said Praveen Khandelwal, secretary general of the Confederation of All India Traders (CAIT).
Firstpost spoke to e-commerce experts, angel investors and the industry body, asking them what they hope to see in the government’s upcoming policy. Here is their wish-list:
1) Transparency: There are too many grey areas and no clarity about what the rules are. The law permits foreign direct investment (FDI) in B2B e-commerce but many B2C players openly flout the role by using the ‘marketplace’ model, said Paula Mariwala – Partner, Seedfund and Co-Founder, Stanford Angels. While Mariwala said she’s glad the government is finally thinking in terms of a national policy for the sector, she hopes there will be no retrospective effect of taxes or penalty.
2) Consumer protection: Customer-complaints about counterfeit goods are on the rise. A third of the online shopping population has fallen prey to counterfeits over the years, revealed a recent study by Velocity MR, which examined online shopping experiences and the volume of fake or counterfeit products in circulation. The study polled 3,000 people across Mumbai, Delhi, Bangalore, Kolkata, Hyderabad, Chennai, Ahmedabad and Pune. One of three respondents have received fakes/counterfeit products after having shopped online, said Jasal Shah, MD & CEO of Velocity MR.
As such, the policy must not ignore customer-interests, said Satish Meena, senior forecast analyst from Forrester Research.
3) Intent and purpose: When the government lays rules, there should be some rationale behind it, said Devangshu Dutta, the MD of management consultancy Third Eyesight. He pointed to a government rule a few years back that has made it compulsory for a foreign retailer to park half the amount of planned investments into back-end infrastructure in the first three years of operations. “A retailer’s job is not to invest across the spectrum i.e. from farm to fork. I hope the bureaucrats formulating the new rules understand why a rule is being imposed. Else, people will find innovative ways to dodge the system,” Dutta said.
4) Ease of doing business: There are impediments to trade, said management consultant Harish HV. Every firm in this sector is doing the same thing and each one of them should be treated on the same parameters, be it in business, taxation, operations, among others. “Firms may want to go offline and do business, or do both. Don’t put obstacles in their way by way of regulation. Focus on ease of doing business so that the sector can thrive locally too.”
5) Home-grown players: Just as government polices, from a few decades ago, encouraged the manufacturing sector with subsidies, can not the government think of a national policy to encourage the creation of a platform for local players, questioned Arvind Singhal, Chairman, Teknopak Advisors. The e-commerce market is slowly being dominated by players from the US and China.
6) Inventory-based model: When e-commerce players are allowed to operate an inventory-based model, they will be able to stock goods, thus have control on the product and hire logistics partners that can ship them to the customer, said Abhishek Jaiswal, business head, LEAP. With such a model, the government’s aim to boost employment will also be achieved, he added.
7) Labour laws: All the major segments of an e-commerce platform should be taken care of – be it logistics, employees or the back-end, said Harish. The government should ensure that all employees are provided with minimum wages, medical expenses, among other benefits.
8) Abolish heavy discounts: Heavy discounts offered by online players should be abolished as it affects offline players, said Abhishek Agarwal, CEO and co-founder of cross-border e-commerce platform Globepanda. Moreover, taxes should be collected at the source itself so that there is no tax evasion by vendors, he added.
Source: firstpost
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April 25, 2018
Written By Athira Nair
How will the synergy between India’s largest unicorn Flipkart and US retail giant Walmart benefit both parties beyond the obvious goals?
Much has been said about Walmart’s purchase of Flipkart, but let’s get some basic facts out first. For Flipkart, this is a strategic sellout. Investors need exit; they had to look for a buyer at some point. For Walmart, this is a long-awaited entry into retail in India, after succeeding in other Asian markets like China and Japan.
Although Walmart has been present in India for about 20 years now, as a B2B (wholesale) player, Foreign Direct Investment (FDI) regulations restrict Walmart from doing B2C business in India. (The Department of Industrial Policy and Promotion (DIPP) allows 100 percent FDI under automatic route in marketplace model of ecommerce, while FDI is not permitted in the inventory-based model of ecommerce Walmart follows.)
After having established itself as the world’s largest retailer, Walmart wants to bite a chunk of the Indian retail market worth $670 billion, of which etail is $20 billion (and expected to touch 60 percent this year). Holding Flipkart’s hands, Walmart will surely expand the ecommerce market in India. Of course, there is the undeniable effect of Amazon, the only company which has posed a strong rivalry to Walmart in the US and Flipkart in India. But this new alliance does more than fight Amazon, which has got 35 percent market share in India in five years. Flipkart has a lot to learn from Walmart in terms of work culture and operations, while Walmart –being the veteran that it is – can take a leaf or two out of Flipkart’s book in innovation.
Read more at: https://yourstory.com/2018/04/walmart-flipkart-alliance-just-taking-amazon-india
Flipkart’s extravagance and Walmart’s frugality
Consistently efficient operation is Walmart’s key to offering low prices to the customers. In fact, their Every-Day-Low-Pricing (EDLP) strategy is a result of efficient methods in sourcing, supply chain, and front-end operations. The company has the same motto internally too. While Flipkart likes its luxuries, be it swanky offices or pay packages to fresh graduates, Walmart executives still fly economy class. It has only been a few months since Walmart made its minimum wage $11 per hour, following protests about the meager pay to their employees.
According to this article, researchers at some policy institutes have speculated that each Walmart associate does the job of 1.5 to 1.75 employees of a rival. It has also been said that Walmart staff are expected to keep costs at a minimum, even for heating and cooling of the buildings. In fact, after its acquisition, Walmart banned Jet.com employees from drinking at office, which was allowed at the startup till then.
Walmart’s main principle is to provide the cheapest possible prices to customers, and they go extra miles for that. Even the Walmart big box stores are minimalistic, saving costs for the company, which in turn benefits the customer.
In India, the next 100 million customers to come online will be the middle class, who check price labels before buying. Flipkart will benefit greatly by following conservative-minded Walmart’s dictum.
On the one hand, Flipkart will now have access to more categories and better quality products, thanks to a better pool of sellers from Walmart. But the 1.5 lakh existing sellers on Flipkart are a bit wary of the Walmart entry, as the 56-year-old company is infamous in the US for constantly pushing suppliers to cut prices.
Like many industry observers who feel that Indian ecommerce has practically become a war between American titans, online sellers are also concerned how this synergy will work out in pricing.
According to an online seller active on both Amazon India and Flipkart, Amazon being a US entity, their rules and regulations are set in Seattle already. “But Flipkart understands India better. They change rules according to how the ecosystem is evolving. But Walmart enters with the same US mentality. Flipkart will soon become like Amazon,” says this worried seller.
A major factor bothering the online seller community is discounts. To be clear though, Walmart does not give discounts; they have EDLP: their MRPs are just lower than competitors’. Walmart makes it happen with a diligently engineered supply chain with lower costs in operations, salary, transport, packaging, etc.
Arvind Singhal, chairman of Technopak consultancy, says that Flipkart will continue with discounts. “But their sourcing will be more intelligent now (with the entry of Walmart), and their pricing will be more tactical,” he adds.
The Walmart deal will give Flipkart access to international markets. To penetrate deeper into different markets the homegrown ecommerce unicorn will need deep pockets like Amazon – exactly what Walmart brings in.
Currently, Flipkart claims to have the largest market share in electronics, mobile phones, and fashion. (The first two boost GMV while the third gives good margins.) But this does not prove customer loyalty to the platform. Customers often do their research online and choose according to their wallet size. To build loyalty among customers, they need to shift focus to beauty, grocery, personal care items, furniture, home furnishing etc. – fronts on which Walmart can do a lot.
Mohit Gulati, a Mumbai-based investor, says Walmart will add further mileage into Flipkart’s winning categories like consumer durables, fashion, and groceries. “Flipkart has always been keen on grocery but execution in the grocery business is tough. With Walmart, the strength of execution comes to the foray for Flipkart,” Mohit says.
Source: yourstory
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April 14, 2018
Written By Deepti Govind
Bengaluru: Swedish giant Ikea Group’s entry into India will likely accelerate expansion of the country’s organized furniture market. But the company will have to rely heavily on after-sales assembly services rather than the do-it-yourself (DIY) model it uses elsewhere if it is to become really successful, experts said.
Source: livemint
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April 11, 2018
Written By SOURAV MAJUMDAR
We all know of the e-commerce battleground and the eyeball-to-eyeball confrontation between global giant Amazon and homegrown Flipkart. But an equally intense battle is unfolding behind the scenes: that’s for the top slot in the highly competitive online fashion sweepstakes. That the big boys in the e-commerce game will be locked in a fight to the finish on the fashion front is not without reason. At last count, the size of the Indian online fashion market was pegged at $4 billion, projected to grow 3.5 times to touch $14 billion by 2020. And that’s not all. Globally, online fashion retail is one of the largest categories in e-commerce and the same trend is visible in India, as more and more people log in to shop for clothes and accessories. Online fashion retail is also pretty much a battle between Amazon and Flipkart, with one little twist. Flipkart also has the Myntra-Jabong combine under its belt–the result of two acquisitions which demonstrated Flipkart’s seriousness about the fashion business–and the smallest player currently seems to be winning.
Our cover story, written by Deepti Chaudhary and Debojyoti Ghosh, takes a detailed look at what’s at stake in the online fashion retail faceoff. With gross merchandise volume (GMV) set to touch $1.85 billion by FY19, Myntra is in pole position, followed by parent Flipkart, which expects to finish FY19 with revenue of $1.6 billion. Amazon, with its legendary deep pockets, has some catching up to do, though its fashion business in India is also witnessing a very rapid pace of growth. Amazon Fashion is one of the top three stores on Amazon.in. The e-commerce giant saw an 80% growth in fashion in 2017, and the year before had seen growth of 100%. So clearly, the global giant will soon be snapping at the heels of Myntra and Flipkart. And that’s exactly what makes this fight so compelling to watch. Amazon is battling Flipkart in the larger ‘affordable’ fashion space, and taking on Myntra in premium fashion.
Meanwhile, Myntra is upping its game aggressively, using a combination of technology and fashion innovations which its chief executive, Ananth Narayanan, believes will keep the fashion e-retailer ahead in the game and even win against Amazon. The strategy, Narayanan says, is to innovate on three fronts: selection, service, and customer engagement. But retail consultant Devangshu Dutta, who describes Amazon as “relentless”, feels it’s a matter of time before the U.S. giant picks up pace even quicker, given that the margins tend to be high in this segment.
The online fashion story apart, another one I would urge you to read is about how the husband-wife duo of K. Ganesh and Meena Ganesh have put together a virtual ecosystem of exciting startups through their platform GrowthStory. The serial entrepreneur couple, known for their earlier venture TutorVista which they later sold, are entrepreneurs in the finest tradition.
Set up in 2011, GrowthStory today runs as many as 13 companies, mainly in the consumer Internet space, with successful brands like online grocery firm BigBasket, home healthcare provider Portea Medical, and online jewellery store BlueStone among them. The Ganeshs are different from your ordinary VCs in that they not only bring in investments but also put in place founding teams who then work as co-founders. We like to call GrowthStory a billion-dollar startup factory
Source: fortuneindia
