9 December 2016

Walmart vs. Amazon: Is India the Next Battleground?

Amazon is on overdrive in India. Earlier this year, the world’s largest online retailer became the second-largest online marketplace in the country by shipments and gross merchandise value. (Flipkart remains number one in India.) It also announced an additional $3 billion investment, taking its total investment in India to $5 billion; it launched its popular subscription-based program Amazon Prime to drive customer loyalty; and it announced that it would be soon be introducing its Prime Video service. Recently, in October, the firm launched its “Global Store” for Indian customers enabling them to buy products sold on its U.S. website while paying in Indian currency. Prior to this, while customers from India could buy on Amazon’s U.S. website, they had to pay in dollars.

Amit Agarwal, Amazon India’s vice president and country head, says that “enhancing shopping experience” for customers is “one of the key pillars” for the company. With the Global Store, customers in India will have direct access to thousands of international brands and a starting selection of over 4 million global products. While initially the Global Store will have products from the U.S., over time, products from other key markets such as the U.K., Germany and Japan are also expected to be listed. India, which is one of the fastest growing e-tail markets around the globe, is the third country after China and Mexico to get the Amazon Global Store. This move will no doubt help Amazon compete more vigorously against Flipkart.

More importantly, perhaps, it will also help strengthen the company’s arsenal against the imminent entry of Walmart — the world’s largest brick-and-mortar retailer and its arch rival.

Amazon, though, is silent on Walmart’s reported entry into this segment. “We are not competition-focused, but customer-obsessed,” says Agarwal. “Our goals and our targets are only focused on our building a better experience for our customers and sellers.”

Walmart’s Entry: A Matter of Time

According to media reports, Walmart is all set to join the Indian e-tail party soon. While the company is reported to be talking to several Indian e-tailers like Snapdeal and Shopclues, the strongest buzz is around Walmart entering into a strategic alliance with Flipkart or making an investment in the company, possibly to the tune of $1 billion. While both Walmart and Flipkart refuse to comment on what they term as “speculations,” Rajneesh Kumar, senior vice president and head of corporate affairs at Walmart India, says: “E-tail is undeniably a very big change and is here to stay. Understandably, that is where the consumer is going. We believe the next five years will belong to those who commit to provide an omni-channel experience to customers.”

“Think of it as an alliance of the ‘Amazon-worrieds.’”–Kartik Hosanagar

Walmart currently has 21 cash & carry wholesale format stores, called Best Price, across nine states in India. This number is expected to increase to 70 over the next three to five years. According to Kumar, currently all stores (which are open only to commercial and institutional customers) provide an omni-channel shopping experience to the members. “B2B e-commerce is a major driver of growth for us in India,” says Kumar. He adds: “For us, India is a long-term commitment. It is a growing economy and hence an important market. We continue to look at all opportunities and keep scanning the business environment on how we can serve our business members better.”

Industry observers and experts believe that it is only a matter of time before Walmart makes a foray into online retail in India through some kind of an investment or partnership with a leading Indian e-tailer. Kartik Hosanagar,Wharton’s professor of operations, information and decisions, whose research focuses on the digital economy, in particular Internet media, Internet marketing and e-commerce, notes: “Walmart has been interested in India for quite some time now. They explored a partnership with Bharti but that fell through. [In 2007, Walmart had entered into a 50:50 joint venture with Bharti Enterprises. The partnership broke off in 2013.] Internet companies that are more used to a different pace and greater transparency are a better partner for Walmart.”


Hosanagar believes that Walmart’s India strategy will borrow heavily from its China experience: It will “partner with local companies that have better local knowledge.” He points out that in China, Walmart started with a small investment in Yihaodian. Later, it purchased Yihaodian in its entirety. And more recently, it has partnered with JD.com, including selling Yihaodian to JD.com. “This way, it has partnered with China’s second largest e-commerce company to take on Alibaba (the e-commerce leader in China). This also allows Walmart to focus on its offline stores and simply set up an online store on JD.com.”

Hosanagar also points to Walmart’s recent acquisition of Jet.com in the U.S. for $3.3 billion. He notes that even though Jet.com is unproven, Walmart was willing to pay a considerable amount because “it finally found a proven [individual, Jet.com co-founder] Marc Lore, who is willing and capable of taking on Amazon.com.” A partnership with a player like Flipkart will seek to do the same in India, says Hosanagar. “Think of it as an alliance of the ‘Amazon-worrieds.’”

Ankur Bisen, senior vice president for retail at Technopak Advisors, considers Walmart’s reported moves in India to be in line with its global strategy. He says: “With the acquisition of Jet.com in the U.S., Walmart has put e-commerce at the heart of its growth strategy. It wants to protect its status as a dominant global retailer and recognizes the need to align with the rapidly changing world of retail. It also signals that it will not shy away from either building this capability in-house or pursuing acquisition opportunities, or both.” In India, Bisen notes, Walmart has organically built a cash & carry business that has “grown reasonably well” and has also started piloting “multi-channel options” in this business. Says Bisen: “This is in line with Walmart’s global approach of re-modeling brick businesses into multi-channel businesses.”

Rishikesha Krishnan, professor of corporate strategy and policy at the Indian Institute of Management (IIM) Bangalore and currently director of IIM Indore, sees Walmart partnering with Flipkart as a logical move. The current policy environment in India is not conducive for Walmart to make a direct entry into physical retail. But since the policy allows marketplace models in e-tail, Walmart can have a piece of the market via Flipkart. “There is a saying that an enemy’s enemy is a friend. Besides, Flipkart has shown the ability to compete strongly with Amazon for the Indian market. And India is the “next big thing” in retail. So it makes sense for Walmart to have a position in this market,” says Krishnan. S. Raghunath, professor of corporate strategy and policy at IIM Bangalore specializing in strategic alliances and strategic leadership, adds: “Walmart has been trying very hard to up the ante in online retail. The acquisition of Jet.com in the U.S. followed by the news about Walmart’s interest in acquiring a stake in Flipkart fits with the company’s thrust to increase its play in the online retail space and add to its competitive strength.”

Power of Global Sourcing 

The big question is: What impact will the entry of the world’s largest retailer have on online retail in India?

“The Indian e-tail ecosystem will have a superior supply chain and a wider variety of products than what is currently available,” says Sreedhar Prasad, partner-business consulting at KPMG India. Prasad notes that while players have been investing in the last mile, customer experience and so on in recent years, there has not been much action in terms of bringing in newer and different products to Indian customers; e-tailers are sourcing from the same suppliers or the same type of suppliers. Prasad believes that this is where global players like Walmart or Tesco can add a lot of value in India.

“The Indian e-tail ecosystem will have a superior supply chain and a wider variety of products than what is currently available.”–Sreedhar Prasad

“If it is just an investment by a global player in a big Indian e-tailer, then it is not of much interest. But if there is an alliance between two [big players], then I am very bullish about it because the global supply chain giants enabling Indian e-tail can be a very powerful trend in the sector. The power of global sourcing, including sourcing from India itself, can be a big impetus to the e-tail ecosystem in India,” says Prasad.

Devangshu Dutta, chief executive of consulting firm Third Eyesight, notes that since its breakup with Bharti, Walmart in India has been restricted to its cash & carry wholesale business, Best Price, which primarily sells to small businesses. It has also been experimenting with overlaying e-commerce as an extension to the Best Price business. “An investment into an e-commerce platform could give it additional inroads into the consumer retail market by proxy. For a platform such as Flipkart, Walmart can provide additional product expertise and also allow it to diversify the merchant base as Flipkart needs to under the foreign direct investment (FDI) regulations.”

IIMB’s Raghunath suggests that Walmart can use the Flipkart connection to turn its current B2B stores in India into online retail business opportunities and warehouse locations for delivery. “Flipkart data can be useful for Walmart to project buyer behavior and preferences. Flipkart can be the front end with Walmart at the back end,” says Raghunath, adding that if the relationship works out, Walmart may look at deepening it further and “become a major player” in the Indian online retail market. Krishnan believes that any alliance between Flipkart and Walmart would be a “win-win” for both. “We don’t know the terms of Walmart’s investment in Flipkart, but if [Walmart] can get access to Indian retail/consumer data through this association that would be invaluable to them should they re-enter conventional retail.”

Third Time Lucky?

But Walmart’s India foray has not created any big waves up to now. As noted earlier, its partnership with Bharti Enterprises broke off in 2013 and since then, while it has been growing its cash & carry business, Walmart has been a fairly low-key player in India. Dutta, however, feels that its new partnership could work out differently. “Partnerships are an outcome of the objectives and behavior of both partners being in sync. The Bharti-Walmart joint venture broke up because the two partners viewed the Indian market, growth plans and investment needs very differently, within the constraints placed by the FDI policy. Any other potential relationship Walmart creates will be driven by the dynamics of that specific relationship, and their respective leadership teams at the time,” he notes.

“Retail is a dynamic and intensely local business, and success in one market is no guarantor of success in another.”–Devangshu Dutta

Bisen adds that e-tail in India has matured to a level where entry barriers are significantly high for a new entrant to gain market leadership. Walmart will be looking to “get a foot in the door in [what is] perhaps the last significant market opportunity for e-commerce where the pecking order is yet to shape up.” According to Bisen, Technopak’s view is that 80% of the e-commerce market is almost always marketplace driven and most major e-commerce markets are dominated by two players. He believes that the Indian market will also evolve towards this direction in the next four to five years. He expects Flipkart, Amazon and Alibaba backed ecosystems to occupy 80% of the Indian e-commerce market. “Who among the three will lead is an interesting narrative that will unfold and will solely be dependent on the strategies of these individual players,” says Bisen. What role Walmart plays in this remains to be seen.

According to the New York-based market research firm eMarketer, Walmart is the second largest online retailer in the U.S. after Amazon. However, while Amazon’s pure e-commerce revenue represents 74.1% of total sales, Walmart has e-commerce revenue of just 2.8% of its total sales.

Can Walmart’s entry in Indian e-tail help it in its battle with Amazon worldwide? Not necessarily, says Dutta. “To my knowledge, there are no retail rivalries that are truly global in nature. While companies may be multinational, retail is a dynamic and intensely local business, and success in one market is no guarantor of success in another.”

Let us not take Agarwal too seriously. Being that he is a native of India one would have expected him to be more savvy about the country of operation. Here are some major failings/flailing(s) of Amit.

1. Recognize that without Vernacular India is a lost cause. Trying to clone someone (Flipkart) which was trying to clone you was like a dog chasing its tail. 60-80 million users at the max and everyone is trying to seduce them with a big/bigger/biggest discount and spending themselves into oblivion. It should not be forgotten that Amazon India’s losses actually impacted overall Amazon numbers.

Now that he recognizes the importance of Vernacular what does he do – he commits 2 spectacular bloopers. A well designed TV ad campaign is launched under the ‘Apni Dukaan’ {my store} moniker. The problem is that all this ad campaign succeeded in doing was to drive traffic to Apnidukaan.com. Amazon did not own that domain name.

DUH – which idiot would spend $25 mn on a campaign and not ensure that he owns that domain name. A name that could be acquired for $10,000 will now cost upwards of $50 million!!!

Then Amit launched Udaan!!! How is Udaan connected to shopping? DUH DUH. Udaan is a Government of India scheme to get people to fly – Amazon ~ Udaan I do not see the connection – perhaps Amit and his boss Bezos do.

2. Flipkart, Snapdeal and now Amazon are trying to solve a problem in India that does not need solving. India has 14 million retail outlets – a density of 11 outlets for every 1,000 people. This is the highest in the world. Indians are spoilt for choice where shopping is concerned specially the Indians that Flipkart, Snapdeal and Amazon are targeting. When these sites launched the customers came for the novelty and they stayed for the discounts. Now it is impossible to wean these customers from discounts. More than half the shoppers on these websites will stop buying online if they are not offered huge incentives.

3. Ecommerce in India is a valuation game not a sustainable business model. The founders of Flipkart are being hailed as disruptors – really. What was their accomplishment? They tried to clone Amazon – have not created a sustainable business -have personally become extremely wealthy for doing what. Did they invent something? Did they create something? Did they have an original idea?

No. No and No.

The game was to find a bigger fool and sell the company or make a fool of the public by listing the company. There is not an iota of innovation. Someone credits them with bringing about the COD model. DUH DUH DUH. The Indian Postal Service has been offering COD for 150 years. It was called VPP (Value Payable by Post). It was possible the earliest example of shopping. Magazines carried ads (rather than web delivery) – buyers filled out the item number and quantity (similarities with shopping carts anybody) – and 10-15 days later the postman or Dakiya brought the goods and you paid him cash for your order.

4. 800 million Indians do not understand a word of English. Not one word. Another 300 million speak broken English but do not have the ability to transact in English. Through English you reach 60-80 million computer/laptop owning Indians and every site is fighting for these customers while the likes of Lee Fixel are valuing these anomalies as if they will one day sell to 20% of the worlds population!!! NOT HAPPENING

Not happening unless you fill a need and reach the hinterland.

Let us look at what the railways did.

The Indian Railways website – irctc.in – sold 200 million rail tickets worth INR 225 billion (US $ 3.4 billion) at a profit of INR 1.3 billion (US $ 19.6 million) for the (financial) year ended March 31, 2016. Started in 2006-07 with just INR 20 Cr (US $3.5 million) IRCTC has managed to scale and reach profitability. This is all the more remarkable if one looks at the passenger demographics – not conversant with English, no access to a computer and not familiar with the Internet. Despite this, sales continue to rise. The Railways forecast a 20% jump in sales this fiscal year.

How did the Railways do this?

They asked and answered two questions. The first will the website address a pain point and, second who is our customer and how to get them to purchase tickets online?

Before tickets sales went online, customers went to train stations stood in long lines to reach the window. Here it could take another 30 minutes to buy the ticket. This exercise could take the better part of a day. This was a real inconvenience that IRCTC’s website eliminated. Customers not only use it but also pay a small fee to do so.

Being that many rail passengers are from smaller towns and villages the challenge for the railways was to get them online. Their elegant solution was to recruit 100,000 agents across India to facilitate rail bookings.

5. Walmart has studied all this. They are aggressively acquiring Indian domain names – using a name like Flipkart or Snapdeal or for that matter Amazon and Walmart in India would be akin to using western names in Russia and China – they just would not work. Walmart has figured that out and when they launch in India it will be as an Indian brand because Indians prefer Indian brands – check out Millward Brown.

6. Alibaba is at at the top of the heap. With that name they have no problem immediately becoming a Pan India brand – a name that every Indian can pronounce, a name that every Indian knows.

In my opinion Bezos has already lost the battle – he never should have launched Amazon as Amazon – if the India market was important it should have been KaKhaGaa by Amazon and should have targeted rural India where no organized retail exists. Amit should have been more diligent and understood the country of operation rather than cloning a clone.

I can go on but this seems like a good point to close.

Happy to engage and give citations for what I have said.

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