Why the Walmart-Flipkart alliance is about more than just taking on Amazon in India


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.

No good news for sellers

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