Flipkart-Walmart acquisition saga nears an end; here's what it means for India's e-commerce sector

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Lately, Flipkart’s imminent acquisition by Walmart has hogged all the limelight. Analysts estimate that Walmart is in the process of buying approximately 70 percent stake in Flipkart for somewhere between $14.5-15.5 billion at a valuation of approximately $20 billion. Google parent Alphabet too is expected to buy around 10 percent stake for around $1.5-2 billion.

While the word acquisition is being bandied around quite a bit, Greyhound Research claims this could be more on the lines of a partnership. “This deal is more inclined to be a partnership than an acquisition, which allows Flipkart to continue operating in a near as-is fashion,” writes Sanchit Vir Gogia, Chief Analyst, Founder and CEO of Greyhound Research. “The company has established partnerships in key markets like Japan (Rakuten), China (JD.com), UK (Sainsbury-ASDA), US (Google) among others.”

Post the conclusion of this deal, Flipkart will no doubt gain financial and operational muscle. According to Gogia, Kalyan Krishnamurthy is expected to continue as CEO, and Binny Bansal as the executive chairman. However, Sachin Bansal could finally opt for an exit.

How Flipkart benefits with Walmart

Flipkart is more of a marketplace, while Walmart is more of a logistics and supply chain expert. According to Gogia, Walmart “will be able to extend this expertise to managing physical goods in the digital world – a strength that Flipkart lacks. This strength is a significant differentiator in a marketplace dominated by thin margins and worsened by steep discounting policies.”

Gogia adds that Walmart’s expertise in the grocery segment will also benefit Flipkart. “Walmart has exceptional understanding and network in this area and we can well expect the combined entity (under Walmart’s guidance) to focus significantly on selling groceries and other agri products via both the Flipkart marketplace and Kirana stores,” Gogia writes.

Impact on Paytm and Amazon

Needless to say, the Flipkart-Walmart deal will also have huge impact on some of the Indian e-commerce site’s rivals – especially Amazon India. Others who are likely to feel an impact include Paytm Mall, TataCliq, and Shopclues to name a few. “In the light of this aggressive and head-to-head competition between the Big3 namely Walmart (including Flipkart), Amazon and Alibaba (read Paytm Mall) we can well expect further consolidation and acquisition of specialized eCommerce companies that will allow the Big3 to gain dominant market share in newer segments,” Gogia writes.

Adrian Lee, Research Director, Gartner says, “Smaller players constantly face a problem of scaling up their operations. However, this does not mean that they will be forced to exit. The smaller players in many cases are more agile and open to new business models. They should concentrate on specialization within their domains to build up a valuable cache of users seeking differentiated retail experiences.”

Amazon India’s reaction

In response, Amazon has reportedly poured in Rs 2,600 crore into its India operations. This is one of the biggest fund infusions by the Seattle-based company, and is said to be for the marketplace business. Amazon India’s new funds come at a time when chief rival Flipkart is set to be acquired Walmart.

The infusion of funds was spotted by ET on Amazon India’s filings with the Registrar of Companies. With this, Amazon’s total investment into its marketplace business – Amazon Seller Services – crosses the Rs 20,000 crore mark.

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In little over a year, the company has poured in over Rs 10,700 crore into its Indian operations. Back in January, Amazon India had received Rs 1,950 crore from its parent company. A couple of months before, it had received Rs 2,900 crore. Back in 2016, CEO Jeff Bezos had committed to investing $5 billion in Amazon’s India operations.

Impact on consumers

The intense competition between e-commerce sites can only come as good news for us consumers. In the quest to constantly outdo each other, consumers could expect deeper discounts, more product categories, and also availability of international brands.

“I fully expect discounts/promotions to continue unabated. As the e-commerce players mature into more profitable businesses, it is very unlikely that discounts will stop. More of the promotional support will be passed back to the suppliers who want the user traffic,” Lee says.

Gogia also adds, “Another key outcome for the consumers will be better-managed deliveries given the increase in investment in supply chain and infrastructure. This will also translate to the availability of products in Kirana stores which implies better pricing, quicker deliveries and overall better service levels.”

Indian e-commerce market sees M&A deals worth $2.1 billion in 2017

As much as USD 2.1 billion worth of M&A (merger and acquisition) transactions were inked in 2017 in the booming Indian e-commerce industry, which may soon witness its largest-ever deal - the proposed Flipkart-Walmart nuptial.

According to data from Grant Thornton, 21 deals worth USD 2,112 million were seen in 2017 with participation from players like Paytm and Flipkart.

This, however, was lower compared to 2016 which saw deals worth USD 2,224 million (18 transactions) being inked, as per the global audit and advisory firm.

In the January-April 2018 period, six transactions worth USD 226 million were seen, according to the data.

If the Walmart-Flipkart deal indeed goes through, it would be the largest so far in the Indian e-tailing market that is forecast to grow to USD 200 billion by 2026 (Morgan Stanley estimate).

"The Indian e-commerce market is here to stay and grow. The frequency of purchases will increase," Vidhya Shankar, Executive Director, Grant Thornton India told PTI.

On the planned Flipkart-Walmart deal that has already set the e-tailing space on fire, Shankar said the US-retail giant, flush with cash reserves, has a record of entering into areas and markets through acquisitions.

He cited the example of Walmart's 2016 acquisition of e-commerce start up Jet.com to fight Amazon, as a case in point.

"India is a long term play and it is therefore important to get a foothold in the online segment," Shankar noted.

According to sources, Walmart will pump in about USD 15 billion along with Google's parent Alphabet to pick up majority stake in the company, valuing the Indian e-tailer at a whopping USD 20 billion.

While the US retail giant has been in discussions with Flipkart for months now, the deal is likely to be announced in the coming days.

Such a partnership will not only help the Bentonville-headquartered company strengthen its position in the Indian market but also take on global rival Amazon more aggressively.

According to Greyhound Research, Walmart is expected to continue operating its existing Cash & Carry business in India separately and not merge it with the consumer facing e-commerce business of Flipkart.

"We expect Walmart to be in this journey with Flipkart (if the deal does goes through) for the long haul and the one where both parties join hands to bring respective expertise. To give context - Walmart has been sourcing directly from farmers; has great depth in supply chain management warehousing operations - solid pluses for Flipkart," Greyhound Research Chief Analyst and CEO, Sanchit Vir Gogia said.

Flipkart has recently concluded a USD 350-million buyback in Singapore to go private, pegging the valuation at over USD 17.6 billion.

Market watchers say the decision paves way for Walmart to buy stake from a single entity rather than multiple parties. Flipkart had undertaken a similar move earlier this year, following the closing of its Softbank-Microsoft-Ebay deal.

The deal is also being watched closely as it will set the tone for consolidation in the sector in many ways. E-commerce is a capital-intensive play and companies like Flipkart and Amazon have pumped in billions of dollars towards marketing and setting up infrastructure like warehouses and logistic chains.

Last year, Flipkart was engaged in discussions with Snapdeal for a possible merger but the talks fell through after smaller rival decided on charting its own independent path.

Facebook Planning To Enter Indian B2C E-Commerce Market; To Test Transactions This Month Only

Amid acquisition of Indian e-commerce giant Flipkart by Walmart, Facebook is eyeing a larger piece of the country’s fast-growing ecommerce market where the world’s largest e-tailer Amazon is already betting with huge capital infused in its Indian business.

According to a report by Economic Times, the social networking giant is in talks with several brands and businesses in India to list on Facebook Marketplace. It will begin testing business-to-consumer (B2C) transactions on the marketplace this month ahead of a soft launch planned for June.

The report further said that, Facebook will build more tools on its marketplace for businesses to upload products and manage inventory and orders, and it will also add payments to it by the end of this by the end of this year. For now, Facebook will start with directing consumers to sellers’ (Facebook) pages or websites.

Launched in October 2016, Facebook Marketplace is a flagship platform by Facebook to sell items on the social network platform.

To recall, In India, Facebook launched its marketplace as a consumer-to-consumer (C2C) interface in November 2017. The social network however received a very cold response to its attempt at creating a domestic C2C marketplace, competing with other C2C marketplace startups such as Quikr and OLX.

Facebook Marketplace is available in 70 countries and has more than 800 million people visiting each month to buy and sell goods.

E-commerce industry of India is estimated to grow at 60 percent to about $28.5 billion in terms of gross merchandise value (GMV) in 2018, according to a report by Redseer. While, according to Morgan Stanley estimates, the Indian e-commerce market will be worth $200 billion by 2026.

While Walmart is already close to acquire a majority share in Flipkart and Amazon and has promised to invest more money in its India operations to compete with new competitors. Google’s parent company, Alphabet, may also invest $1-2 billion in Flipkart if the Walmart deal goes through.

Alibaba-backed Paytm had also come up with its own e-commerce arm called ‘Paytm Mall’. Launched in 2016, PayTM Mall is also giving a quite a good competition to these e-commerce giants, replacing Snapdeal as the third largest player after Flipkart and Amazon India. Just last month, PayTM Mall raised close to Rs 3,000 crore in a financing round led by Japan’s SoftBank along with participation from existing PayTM investor Alibaba.

Facebook Marketplace, along with Flipkart, Amazon and PayTM, will be in cut-throat competition with each other because of the very fact that all of them are ultimately fighting for the same customers. But for sellers and brands, these different platforms will give different distribution channel for them to sell their products, which is a good thing.

According to the Forrester’s report called “the Indian Online Retail Market”, H1 2017, India is the fastest-growing online retail market in the world. As per the report, e-commerce sales in India will reach $64 billion by 2021, growing at a five-year compound annual growth rate (CAGR) of 31.2%.

Notice Sent To Ecommerce Companies For Not Following Packaged Commodity Rules 2017

Many ecommerce firms are still not aligned with the Packaged Commodity Rules 2017 even though the Government of India has made it mandatory to avail important details about their products when selling online, as per recent ET report.

The Legal Metrology Division of the Consumer Affairs Department has started issuing notices to the ecommerce companies for not following the Packaged Commodity Rules 2017 amendment that was conceptualised in June last year and is effective since January 1, 2018.

The Department earlier said that companies may also make use of ‘Swachh Bharat’ as a label on their products for quality assurance purposes. When it comes to net quantity assurance, they can put QR codes, barcodes or e-codes on the products.

The Department has received multiple complaints from consumers stating that certain ecommerce firms were not providing the exact MRP of products while claiming to offer huge discounts. Some companies also did not provide the ‘best before’ or ‘expiry date’ of all the human consumption items sold on their online platform, even after the Rules came into effect.

Before the Rules came into effect, the Department had received over 50,760 complaints against ecommerce firms between April 2016 and March 2017, a steep jump from 23,955 in the financial year prior to that.

The Consumers Affairs Department earlier sent a notice instructing ecommerce companies to be fully compliant with the rules.

BN Dixit, Consumer Affairs Director for legal metrology said in a media statement, “We have now given an advisory to them so that they are not caught unawares if they face prosecution from state authorities.”

A recent survey shared by community social media platform, LocalCircles with Inc42, reveals that 62% consumers are still unable to find MRP information and 87% consumers are unable to find “best before or expiry date” details on packaged products while shopping on ecommerce sites.

In an official statement LocalCircles said, “Many ecommerce sites have not mentioned the actual product MRP and just mention the list price,” adding that this may be inflated so that consumers may be lured by offering big discounts on   that price only to find the product receipt which shows the actual MRP was much lower than the list price.

The Packaged Commodity Rules 2017 has a provision to prosecute such non-compliant companies with fine ranging from $29.34 (INR 2,000) upto $1,467 (INR 1 lakh), depending on the nature of the offence which can lead to imprisonment as well.

India’s ecommerce market is expected to touch $200 Bn by 2026 from $ 38.5 Bn as of 2017, as per a report by Morgan Stanley.

The latest IBEF report suggests that the total online spending, inclusive of domestic and cross border shopping, is expected to increase by 31% year-on-year to $135.8 Bn (INR 8.76 Tr) by 2018. At a time when India is poised with an immense rise in ecommerce sector, it becomes imperative for the  ecommerce players to comply with the law

Counterfeit Products Continue To Haunt E-Commerce

The dependency of Indian consumers on ecommerce sites is gradually increasing. Combined with convenience, these ecommerce sites provide consumers with choice as well as discounted prices – all these from the comfort of their homes. But lately, many complaints of counterfeit or fake products being sold on ecommerce sites have been reported by consumers.

The perils of online counterfeits

In a recently concluded study by Velocity MR, one third of the online shopping consumers have fallen prey to counterfeits. The study which covered a total sample size of 3000 respondents covered key Indian metropolises including Mumbai, Delhi, Bangalore, Kolkata, Hyderabad, Chennai, Ahmedabad & Pune showed that over a third of customers have received fake products from online sites.

Earlier this year, global footwear brand Skechers filed a case against Flipkart and four sellers on its platform for fake goods being sold under its label, it cracked open the lid on one of the most persistent problems in Indian e-commerce: Counterfeit brands.

From footwear to branded apparel, beauty and personal care products, alcohol and perfume, big brands have been going head to head with online marketplaces over fakes on their platforms. And with brands threatening to pull out, the e-commerce giants have said that they are determined to combat counterfeiters. However, recent studies show that counterfeit or fake products continue to be a menace in the growing Indian e-commerce space. 

According to consumers, sellers list counterfeit products on these e-commerce sites at heavily discounted prices to gain the attention of customers. In the race to advertise highest discounts, most eCommerce sites only do basic checks on sellers and don’t really perform the detailed due diligence. Many ecommerce sites in fact offer cashback schemes and additional quantity and threshold discounts to lure the consumer to shop more and finally somewhere in this process the consumer ends up shopping for a product that us counterfeit.

 “The online retail market in India is expected to touch $100 billion by 2020, and $200 by 2026. It is estimated to grow at a whopping rate of 30% annually, and hence India is dubbed as the fastest growing e-tail market in the world. The growing Internet penetration, global players, rise in smartphone usage coupled with innovation in mobile technologies, millennial consumers and digital payments is fuelling the growth of the e-commerce market in the country,” Jasal Shah, Managing Director & CEO of Velocity MR told CXOToday.

According to him, “E-commerce is increasingly attracting customers from Tier 2 and Tier 3 cities, where people have limited access to brands but have high aspirations. However, this is not free from its share of pitfalls. Even though the e-commerce companies/platforms state a zero tolerance towards any malpractices, however considering the very nature of the business, it would not be possible to maintain a problem free zone. We decided to conduct this study to understand how consumers are facing up to this challenge which is a clouding reality in the online world.”

It is estimated that about 4-5% of businesses in India lose to fraudsters each year in online shopping. There are a variety of fraudulent activities in the e-tailing business, one such being ‘Fake Products’ under the pretext of originals. This not only causes monetary loss but also jeopardises the goodwill of the original player. Under this background, Velocity MR one India’s leading market research and analytics company’s conducted a dipstick to uncover the real perception of consumers towards fake and counterfeit products while shopping online and how they deal with it.

Another research by LocalCircles survey reveals that 38% of 6,923 respondents have received such products from an e-commerce site in the last one year. The survey also mentioned that 12% respondents out of that said they received the fake product from Snapdeal, 11% said Amazon and 6% mentioned Flipkart.  

These respondents mentioned that the fake products they received were mostly perfumes and fragrances, shoes, sporting goods, fashion apparels and bags. Owing to rising consumer complaints, the consumer affairs department is currently drawing up rules for e-commerce sites that would make them more liable in such cases.

What ecommerce companies can do?

Not only to the consumers, fake products can be a problem for the e-commerce companies as well. Along with putting their credibility in jeopardy, instances of counterfeit products could put a sizeable dent in their economy. Ecommerce platforms are realizing the problems and some of them have even taken steps to identify and remove counterfeit product listings. While many experts have predicted that India’s e-commerce market will touch $100 billion in the next 10 years, the ecommerce sites, the regulator and the consumers will have to work in-sync to fight the demon of counterfeit goods.

As mentioned in the LocalCircles survey, 80% of 6,197 respondents believe that along with accepting the sold product back and refunding the consumer, the companies should also be made to pay a penalty. The Velocity MR survey revealed that 92% of 920 respondents who received counterfeit products returned the items and got a refund.

Amazon and Flipkart have said they are keen to dispel any doubt about their ability to crack down on fakes because they have worked hard to win the trust of Indian consumers. 

Paytm Mall, in mid-2017 had delisted over 85,000 sellers, in an effort to block fraudulent sellers from signing up on their platform. Flipkart in past has said it removes counterfeit items from its platforms regularly and has a ‘zero tolerance policy’ for counterfeit goods.

Snapdeal said it regularly inspects listings to identify instances of listing/selling of counterfeit products, monitors seller practices through on-going mystery shopping exercises, and keeps a check on any unwarranted manipulations in seller ratings or pricing.

“Fraudulent transactions are a serious threat to the health of any e-commerce ecosystem. We are committed to staying one step ahead of fraudsters always, and delivering the most secure, frictionless and reliable e-commerce experience to our buyers and sellers alike. As the size of the marketplace increases, we will continue to prioritize building due checks and balances at each step of the transaction cycle,” said a Snapdeal spokesperson, who added the company has been saving Rs 3 crore every month just by launching a unique initiative countering fraud transactions..

Globally, top retailers such as Alibaba, Amazon and eBay have also struggled to weed out counterfeits and second-hand products. Counterfeit product selling is a big business worldwide amounting to almost $500 billion annually.

Many online commerce firms are also using several means to cut down courier frauds, including open delivery, X-ray examination of packages at fulfilment centers and verification of returns as part of the quality control process. Along with a more stringent last mile verification process, wherein the on-site certified engineers visit and fix customer’s problem on spot, these timely interventions can drastically reduces rate of returns.