The Competition Commission of India (CCI) has formally approved the acquisition of Indian ecommerce leader Flipkart by the US retailer Walmart, despite seller unions crying foul. Walmart’s success all over the world has been built on offering low prices to its customers with their ‘Every Day Low Pricing’ (EDLP) strategy.
Retailers who sell on online marketplaces have been complaining that this merger will hurt their business, as the alliance will offer cheaper prices. Just today, Flipkart announced the launch of its grocery store ‘Flipkart Supermart’ stressing on deep discounts.
In its latest decision, the government body has also questioned Flipkart’s discounting practices, which has raised questions on the Flipkart-Walmart alliance’s next strategy. According to a report, sellers are still trying to block the deal.
Months of wait
Flipkart is the most heavily funded private company in the Indian startup ecosystem, having raised over $7 billion. Walmart acquiring 77 percent stake in Flipkart for $16 billion was announced on May 9th following which the former applied for the legal/official permission from the government. The Arkansas-based company has bought out shares from SoftBank and other major stakeholders.
With the government approval now, Flipkart is officially bought out by the 52-year-old retailer, which has been trying to build strength in ecommerce.
With Amazon actively building its business with vast logistics network, Walmart’s investment in Flipkart was a strategic one, as a move against their common enemy.
Walmart entered India in 2007, but has not been able to make the best of it. Since FDI regulations restricted Walmart from retailing in India, it had joined hands as a wholesaler with the Bharti Group and opened 21 ‘Best Price’ stores. Walmart played the B2B role, while Bharti took care of the front-end (B2C). The affair, however, did not last long, and they parted ways in 2013. Walmart has since continued as a wholesaler in the country.
But with Indian retail expected to touch $1 trillion by 2020, Walmart wants a slice of the pie, and its first step is to go online – for the market worth $80 billion by 2020 from the current $20 billion. With growing internet penetration, online shoppers in India are estimated to be 200 million by 2020.
Walmart now operates 21 wholesale Best Price stores in the country, and Flipkart continues to operate independently.