The benefits to Walmart are less certain. Although India’s population is rapidly coming online, the number of people with enough income to shop online is still tiny. In announcing the deal, Walmart warned its shareholders that the purchase would reduce its net income by at least $750 million this year and by more than double that amount next year.
Walmart’s strength has always been its physical stores. It has repeatedly stumbled in its e-commerce efforts in the United States, even as Amazon has become a juggernaut responsible for nearly half of that country’s online sales.
Flipkart, a pioneer in services like accepting cash on delivery for online purchases, has faced its own challenges. Amazon’s entry into India in 2013, backed by more than $5.5 billion in capital from the parent company, pummeled Flipkart with fast delivery, low prices and extra features such as Prime video streaming.
Indeed, when Walmart first began discussions to invest in Flipkart, the Indian company was desperate for capital and willing to sell shares at a much lower price. Now, Walmart is paying a hefty premium to buy its way into the pole position in India’s e-commerce market, but it has not yet outlined any strategy that would keep it ahead of Amazon there.
Walmart also operates 21 wholesale stores in India that sell discounted goods to the mom-and-pop shops that dominate the retail landscape. Regulations prevent the company from opening retail stores in India like it has in the United States, but Walmart may expand its wholesale operations to ease government concerns that it wants to put the small stores out of business.