U.S. retail giant Walmart on Wednesday said India would become a key centre of learning for the global operations of the firm with its buying a controlling stake in Flipkart for $16 billion.
“We are learning how to build and how to partner to build retail ecosystems around the world. India will now become the key centre of learning for our entire company,” Doug McMillon, president and CEO, Walmart, said in an analyst call.
He emphasised that Flipkart was more than just a marketplace and its logistics and payments business made it unique. “It is important to understand that Flipkart has built and is building an important ecosystem.”Judith McKenna, COO, Walmart, said not only was Flipkart innovative with problem solving, but also “doing some great work in AI space and [in] using data across their platforms,...particularly the payments platform they have created.” “All of those we can learn from for the future and see how we can leverage those in the international markets and potentially U.S. as well,” she added.
Addressing repeated questions over the decision not to invest the amount in the firm’s home country, Mr. McMillion said, “If we were looking at this company from 3-5 year horizon we would invest in the U.S. and protect the core… When you sit back at look at the world, look at all the countries, their size, their growth rate, their potential, there just aren’t opportunities like the one we are looking at.”
“India as a country, the growth rate the GDP, the size of the market, the growth of the middle income, the opportunity that still exists for adoption of technology and mobile and then clip down to what space you want to be in, we are retailers and if you look at the retail space in India, e-commerce marketplace you would want to be…”
“If you are thinking 10 years and beyond, you check the box on the country, you check the box on positioning of the business, and check the box on management team… it leads you to conclusion that this is the right decision to make and to do this now. We are excited about it. And you can continue to expect success in the U.S. business at the same time,” he said.
Talking specifically about Flipkart, Mr. McMillon said Flipkart had leadership positions in some of the most attractive categories in the Indian retail market, including apparel, mobile, electronics and large appliances.
Myntra and Jabong, together, are a fast growing fashion ecommerce platform which is an “important category to win, a positive on when it comes to the margin mix. We believe that this piece of the company is positioned well with India’s growing middle class and relatively young population,” he added.
‘PhonePe crucial’
“The PhonePe payments business supports the growth and development of e-commerce, delivering innovations to merchants and customers to simplify transactions. This is an important piece of puzzle while building an ecosystem.” Flipkart’s supply chain arm eKart serves more than 800 cities, making 5 lakh deliveries daily. “We will be able to learn how pieces of the ecosystem work individually and collectively and take the learning to other parts of the world… there is a strong technology team here I do believe .. we will get learning out of Flipkart,” he said.
He added that India was one of the largest and the fastest growing economies in the world and represented an enormous market opportunity with 1.3 billion people, strong GDP growth and growing middle class. “We have been operating in India since 2009 and we have been very encouraged with the progress.”
In fiscal year ending March 31, Flipkart had annual GMV of $7.5 billion, representing 50% year over year growth. Flipkart’s active customers have also grown seven times since 2014 to about 54 million, the company pointed out.
The total investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future. Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake moving lower after the transaction is complete.
