Walmart’s $16-billion purchase of Flipkart has triggered a debate around the logic and the impact on the market. In an email interview, Charles Fishman , American journalist and author of bestseller “The Wal-Mart Effect: How the world’s largest company really works” that described the operations of the retail giant, talks about what the deal means for Walmart and India. Excerpts:
What does the deal mean for Indian customers?
The impact of Walmart’s entry into India should be huge: the largest company in the world has finally come to one of the largest economies in the world. And the business that Walmart is in, well-developed retail, is very poorly developed in India.
There is a lot of room for Walmart to grow and to win Indian consumers. [The impact] will completely depend on where you sit in the Indian economy.
If you’re a consumer, it won’t be just good, it will be great. The e-commerce competition should mean online sites that are easy to use, customer service that strives to get you what you want quickly and reliably, and prices that are low. There will be a real effort to woo customers, and to keep them. Cheap, fast, easy.
What would the impact on suppliers be?
If you’re a company in India that makes products for consumers, this competition will be dangerous. Being sold by Walmart/Flipkart and Amazon could be great for your sales — a big audience, good display, easy to find, a huge market. And a good relationship could mean that either Walmart or Amazon decides to sell your products outside India, in even bigger markets, like the U.S. or China.
But both companies will be squeezing supplier companies to offer the best possible deal to them. So while the business could be big in total volume, the profitability could be tiny or non-existent. That’s a dangerous bargain: that Walmart loves you so much they hollow out your business, even as they grow it. There is a long history of that in the U.S. in the world of physical stores.
That’s an important word of caution. It is tempting to think that working with either Amazon or Walmart can only be good, but that’s absolutely not true, and the competition will make it more dangerous. If you are a retailer in India, if you own a store or a chain of stores selling the same things as Amazon and Walmart, this will be a very hazardous time, the next few years.
You can’t ever beat Walmart on price. You can’t undersell them. You have to compete with other things: you can offer things they don’t — special products, good explanation and guidance, help finding the right thing, satisfaction, freshness, original designs, and a good shopping experience. Plenty of U.S. stores, even small ones, have survived Walmart. But not by standing still. They’ve had to compete by offering customers something the giants don’t: the human touch, a smile and originality.
How do you win against Walmart?
You never ‘win’ with Walmart, because Walmart never gives up. [It] is a tireless competitor. If Walmart is behind (as it is behind Amazon in e-commerce in the U.S.), then it is always looking for ways to innovate, to catch up, to be a better competitor.
If Walmart is ahead, it is always looking over its shoulder, to see who is catching up, and it is looking for ways to innovate — to stay ahead, to grow faster. If you’re a competitor of Walmart, it means you can never rest.
What other issues are likely to come up?
There is another issue, which is the question of community, of what Walmart/Flipkart’s impact on the overall economy of India will be. Walmart plays by the rules, but it is always pushing the limits. Walmart works for every advantage it can get. Taking care of Indian consumers, workers, and the Indian economy will be the job of Indian officials. Walmart will always push to get the best deal… for Walmart. One example: what will the impact of all these new delivery drivers be on Indian cities — how will they come with all the new traffic that Amazon and Walmart/Flipkart might create?
That might seem like a small problem right now, but it could become a much bigger problem. It’s the kind of thing cities should look at right now, and start talking to both companies about [and] insist that Amazon and Walmart/Flipkart find ways of making the roads work better instead of work worse.
So while the benefits of two great competitors seem obvious, you will have to be alert for the downside when it comes to pressure on supplier companies, wages and working conditions. Walmart is not coming to India to be #2, that’s for sure.
Some U.S. analysts have questioned the deal...
Walmart is buying talent, scale, brand name. The price includes buying the future. Flipkart’s business in India could double every 3-4 years for the next decade. If that happens — if Flipkart is doing $30 billion in business or more by 2025 — the purchase price will seem cheap. One more important point: Walmart was paying to prevent Amazon from getting Flipkart, and completely shutting Walmart out of the market.
