How PhonePe and Myntra can help Walmart score in its battle against Amazon

Tuesday April 24, 2018 , 6 min Read

Two Flipkart subsidiaries, Myntra and PhonePe, could help Walmart win consumers faster, especially when combined with the US retail giant’s expertise in customer analytics and targeting.

It is believed that within a week or two, Walmart will announce complete control of Flipkart, with only the founders and a private equity company staying behind.

But why is Flipkart so valuable to Walmart, especially when most urban Indians have been lured away by Amazon. Because Flipkart subsidiaries Myntra (a fashion leader that’s way ahead of Amazon) and Phone Pe are going help make Flipkart – and consequently Walmart - relevant again in India.

Let’s see how.

Myntra is a contribution margin-positive business; the fashion ecommerce company claims to have closed the financial year 2018 at $1.2 billion GMV. When it acquired Jabong, it had a negative growth rate, but things are looking up this year with over 40 percent growth likely for Jabong. The company has made large bets on its private brands, which are working well. Take Roadster, for instance, which has grown approximately 80 percent over the last four years. Myntra is also looking at opening a few physical stores this year for Mango, Espirit, in-house and other brands, and personal care products.

Myntra also started Brand Accelerator in 2017 and has on-boarded five brands so far. This programme expects to create almost $1 billion in sales (not GMV) by 2023.

Sources say Tier II markets did exceptionally well for Myntra, contributing 55 percent to the overall revenue. This was primarily due to their efforts in tapping into consumer insights and addressing consumer need gaps. Myntra currently has over 20 million monthly active users on the platform. Shoppers on the platform visit it 12 times a month and shop about 5.8 times a year, way higher than the industry average (3 times).

Speaking to YourStory on condition of anonymity, a senior official at Myntra said: “In our opinion, physical business is not going away anytime soon, and omnipresence of a brand will matter. More people are expected to explore online and use both channels, depending on availability of time and the type of product they are looking to buy. Our in-house research indicates that India has 450 million people who access the internet; this is expected to grow by 62 percent to 729 million by 2020. Today, we have approximately 60 million product purchasers; this number is expected to go to over 300 million customers by 2022.”

But of course, Walmart will have to create category leader positions for electronics and home products (including furniture) and return Flipkart to form. The US retail giant has undoubtedly invested in the future because India’s internet consumers will go up to 500 million and many of them will consume the internet with smartphones. As of now, Gartner pegs the number of internet consumers at more than 300 million.

Taking the distribution war to Amazon

Flipkart has over 400,000 registered vendors, but only 30 percent are active on the platform. Walmart will, it is believed, revive connections with all retailers registered with the platform.

However, what Walmart is best known for is sourcing. How will it bring all those best practices to Flipkart?

“Expect wider choice, range, and real competition to Amazon,” says Harminder Sahni, the Founder of Wazir Advisors.

The Supply Chain Digest and Tradegecko say Walmart sources products from 70 countries. Readers must know that Walmart’s distribution strategies will make Flipkart’s network stronger than it is today. Here is how:

Streamlining: It will bring down distribution costs by streamlining logistics. It will work with fewer vendors who will be responsible for supplying to distribution centres, managing deliveries, and reverse logistics.
Cross docking: It will work with 3PL large truck operators to move products across the country, from manufacturers, and into warehouses from where they will distribute to micro warehouses based on demand in the market. For example, if two large trucks arrive at a warehouse, one with apparel and the other carrying smartphones, it will move these items into a smaller truck, which will carry them to a smaller distribution centre. Doing this ensures no inventory in the distribution centre. This - known as cross docking - allows the company to manage inventory and reduce costs on a daily basis.
Technology/customer care: Walmart may bring the Retail Link database, which analyses real-time sales on what will sell through the week. The trouble is: will Flipkart’s systems integrate with Walmart’s? Flipkart has built its entire supply chain technology on its own. In fact, the entire retail management system (including the warehouses) is built ground up by Flipkart. Sources say Walmart will have to maintain Flipkart’s technology and improve customer care, adding that Flipkart was always struggling with customer relationship management after the sale, and that Walmart will focus on fixing this.
Finance: India is uniquely poised to use the mobile phone for payments. Flipkart owns PhonePe, a payment platform, which can help Walmart cover Tier III and IV India.

The case for Phone Pe

At present, PhonePe has over 60,000 online and offline merchants across segments such as movie ticketing, food delivery, pharmacies, groceries, travel portals, and petrol pumps. It recently introduced new categories like credit card bill payments and gift cards on the mobile app.

The fintech company had secured funding worth Rs 254 crore from Flipkart last financial year. The ecommerce giant last year announced it would commit an investment of $500 million for its payments business over the coming years.

To spread its offline merchant acceptance network, PhonePe launched its indigenously-designed Point of Sale (PoS) device powered by Bluetooth technology. Costing just $10, the device does not need internet connectivity for the merchant. What does the device do? Customers can use the PhonePe app to scan and pay merchants, who get notifications of payment on their POS “pocket calculator”.

Walmart will want to carry PhonePe to combine an ecommerce and offline-based strategy to win consumers. Currently, Walmart owns 20 Best Price Modern Wholesale stores that work with close to a million small businesses across the country. These small businesses can become a part of PhonePe’s business stream. PhonePe can help consumers buy Flipkart products and pay through its app after the product is delivered.

So, Flipkart is going to be a feather in Walmart’s cap, provided the US biggie does not change the Indian unicorn’s existing technology. The trouble is in the customer service processes, not in what the engineering team has built.

But despite Flipkart’s presence, one thing is clear: two American companies will be battling it out for India’s consumers in the years to come.