Walmart has opened up on the thinking behind its $16 billion majority investment in Flipkart, and perhaps the most interesting facet is that the retailer plans to export ideas from the Indian e-commerce firm to the rest of its global business, including the U.S..
Walmart’s decision to follow Amazon into India is a testament to huge potential growth in the market. Internet penetration is tipped to cross 500 million this year and a rising middle-class emerging, all of which led Walmart CEO Doug McMillon to describe the deal as “a unique opportunity in a market with significant long-term growth prospects” — but the aspirations run further.
“At Walmart, we’re learning how to build — and how to partner to build — retail ecosystems around the world. India will now become a key center of learning for our entire company,” he said on a call with analysts following the announcement of the deal.
McMillon credited Flipkart for more than just an e-commerce business.
The company’s verticals span electronics, fashion and more, but Flipkart’s management team consistently returned to other services including its mobile payment arm, supply chain business than does 500,000 deliveries daily and more. They also dropped a hint at the potential to do groceries in the future, for one.
That “ecosystem” play is something that is quite unique to Asia, particularly in China, and it is an area where Walmart believes it can glean operational intelligence and potential strategy for other markets, including the U.S..
“Not only is [Flipkart] innovative [with the] problem-solving culture that they have, but they are doing some great work both in the AI space, how they are using data across their platforms but particularly in terms of the payment platform that they’ve created through PhonePe,” Judith McKenna, Walmart COO, said on the call.
“All of those things we can learn from for the future and see how we can leverage those around the international markets and potentially into the US as well,” McKenna added.
That admission is notable, and it stands to reason that Walmart — a traditional offline retailer — might seek to lean on Flipkart’s technical expertise to build out its online or tech-enabled businesses elsewhere in the world, particularly with Amazon entering offline via its Whole Foods deal. That helps bring more immediate returns since, as Walmart’s executives admitted, Flipkart isn’t likely to turn a profit any time soon since it is focused on chasing scale in India.
There’s also some synergy with Walmart’s other recent star acquisition.
McKenna added that Marc Lore, the founder of Jet.com which Walmart acquired last year for $3 billion, had been involved in scouting out Walmart during due diligence. She added that, for now, he wouldn’t be a part of the Flipkart business.
“Maybe someday we might involve him, but right now there’s plenty to do in the U.S. business and that’s what he’s focused on,” McKenna concluded.
Walmart already has an international business — which includes a physical retail footprint in India — but McKenna said the management team is “very interested” in the potential to expand Flipkart outside of India to growth that global presence, presumably using many of the aforementioned learnings taken from the Indian market.
“[International expansion] aligns with the [Flipkart] management team’s ambitions, it aligns with an operating model that we [at Walmart] are comfortable with working with. There’s no timeframe on that but it’s something that for the future we are considering,” she added.
The expansion makes sense since Walmart has spent the last couple of years regrouping its global efforts. It exited China in 2016 — instead opting for a partnership with e-commerce giant JD.com — and this month it retreated from the UK after selling its Asda business to rival high-street retailer Sainsbury’s. Perhaps its time to examine upcoming markets worldwide? In which case the $16 billion Flipkart deal begins to seem a lot more strategic.