Flipkart just got a shot in the arm by the $16 billion bailouts by the American giant Walmart.
But will this move prove disastrous for an American company with little to no experience in the confusing Indian e-commerce space?
Flipkart’s tale has been that of spectacular highs and devastating lows. From having an $11 billion valuation in 2014 and consolidating the e-commerce space by buying out Myntra that same year, Flipkart had reached a point where its investors considered devaluing it, there were significant tussles in upper management, and it was losing out to the competition.
Now, the reasons for Walmart’s big step can only be speculated. Officially, they have given many. From, India’s 1.3 billion people being too good of an opportunity to pass up, to Flipkart’s entire ecosystem being the perfect entry for Walmart in the digital space.
But, no matter how many reasons are given, Walmart Is Doomed To Fail In India.
The primary reason for that is that it has virtually no experience in the Indian marketplace. It does operate the ‘Best Price’ cash and carries chain in India, but with limited success. Further, since it is primarily a brick and mortar store, the business philosophy does not gel with the totally different e-commerce space.
This was confirmed by Walmart’s foray into China by buying an e-commerce startup called Yihaodian, which lost out to its competition and was sold to JD.com. Further, Walmart being an American company would work against it in India.
The consumer philosophies of India and other countries vary in a myriad of ways, and navigating this uncharted territory with a leaking ship might prove disastrous in the end.
Speaking of a leaking ship, the second reason for why I think this deal is doomed. Flipkart as a company has been on a decline for the past two years after Amazon pushed its way into the e-commerce space. Even though it has a higher Gross Merchandise value, its market share and consumer trust plummeted sharply.
Their business model which was entirely built on discounts is also highly problematic. It focused only on growth and not on profits.
While discounts do attract customers in India, where consumers are discount-hungry, it does not aid in building consumer trust, which is actually what pays off in the end. Plus the entire issue of fakes on their platform.
Further, there are many other problems with consumers such as lack of infrastructure, digital illiteracy, heavy dependence on cash as a mode of payment. All of these make the success of an e-commerce platform in India difficult. This is further exacerbated by heavy e-commerce regulations imposed by the Indian government in 2016.
As for the Myntra consolidation, it was one step too far, as this diversification rendered it into a Jack of all, Master of None situation, where even though it had an online marketplace, its own brand in apparel and electronics, a delivery chain etc., it was not particularly good at any of them.
This made Flipkart a cash burning machine, with losses increasing to a massive 68% (Rs. 8771 Cr) in FY17. The threat from Amazon and the rapid inroads it made into the market further precipitated Flipkart’s decline.
The burning question remains that whether an all-American company specializing in brick and mortar stores, which failed in India with the traditional business model will be able to revive an e-commerce company with a bad business model, heavy losses, and an infighting prone management in a country with heavy e-commerce regulation and a difficult consumer base.
As of publishing, a consensus is yet to emerge regarding the fate of the investment and the party involved. But given past trends and the signs that have emerged from the company, it sure looks as if the ship will sink.
Sources: Livemint, Economic Times, NDTV
Image Credits: Google Images
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