The American multinational retail giant Wal-Mart Stores (NYSE:WMT) is reportedly holding talks with Flipkart of India for a minority stake in the company. Flipkart, valued at $11.5 billion, is India’s largest online retail store. Wal-Mart Stores is the biggest retailer in the world.
According to reports, Wal-Mart is thinking of investing between $750 million and $1 billion in the Indian company. However, the final amount will depend on the talks currently held between these two companies.
Flipkart was launched by two ex-Amazon employees in 2007. It has grown fast, funded by Accel Partners and Tiger Global Management, and now sells almost everything from cosmetics and suitcases to cell phones.
The Fast Evolving Indian Online Market
The Indian online retail space is fast evolving as even the smaller cities and towns in the country are having speedier and more stable internet connections. Amazon.com too recently started operating their online business in the country. The company is expanding aggressively in India. Alibaba has plans to enter India as well. It seems that Wal-Mart too wants a share of this pie. The Indian retail space is however extremely competitive as there are many large and small players.
As per the Bank of America Merrill Lynch forecast, the Indian market will be valued at $220 billion by 2025. Last year, the market was valued at just $11 billion. That’s quite a growth in quick time, one that Wal-Mart cannot ignore.
Huge Losses a Setback
However, there are concerns about profitability. Because of the extreme competition, almost all Indian online retailers have to offer huge discounts, while investing a lot of money in infrastructure like warehouse centers. Kotak, an Indian brokerage house, estimates that Amazon, Flipkart, and their smaller competitor, Snapdeal, together lost a whopping ($751.46 million in the last financial year.
Competition is also forcing re-valuations of Indian online stores. For instance, Flipkart was valued at $15 billion earlier by the American International Group Inc. But now, the company’s valuation stands at $11.5 billion. Flipkart has received less private funding this year as investors have turned wary of the huge losses suffered.
However, even after this, the Indian players like Flipkart, Snapdeal, Myntra, Jabong and others could become big world players if the country achieves the $220 billion figure by 2025. This is why global players such as Wal-Mart (NYSE:WMT) and Amazon has become keen to enter the Indian market.