Business News

Walmart is keeping the faith in its $16 billion bet to take on Amazon

Key Points
  • Walmart now owns more than 81 percent of Indian e-commerce giant Flipkart.
  • The purchase in May caused a sudden sell off on the US retailer's share price.
  • Walmart wants to use Flipkart's technology to battle Amazon in the online space.
What is Flipkart?
What is Flipkart?

Despite a tricky few months, Walmart is sticking by its $16 billion bet to help it win the online retail war.

The U.S. retail giant bought India's largest online retailer Flipkart in May 2018, looking to take advantage of both its technical expertise in e-commerce and the burgeoning Indian middle class.

But when news of the deal broke back in May, the American retailer's shares immediately tumbled 4 percent. Investors expressed concern that, outside India, Flipkart was struggling to compete with Amazon's dominance and had a long way to go before becoming profitable.

The cash outflow from Flipkart's business also ate into Walmart's profits for the end of 2018 as well as dampening ts earnings outlook for 2019. Year-to-date, Walmart stock has slipped almost 5 percent in value.

Bad news surrounding the financials was compounded in November when Flipkart co-founder Binny Bansal resigned after an accusation of sexual assault led to an internal investigation into "serious personal misconduct."

But amid the controversy surrounding Bansal's resignation, Walmart quietly increased its stake from 77% to 81.3%, offering another sign of its conviction that India's online retail market is primed for growth.

The Indian e-commerce market as a whole is forecast in a Indian government report to quadruple to $200 billion dollars in the next eight years, and by 2034 it's predicted to surpass the U.S. as the second largest e-commerce market in the world.

Last week Walmart CEO Doug McMillon told CNBC that acquisitions such as Flipkart were crucial to the continuing health of his company and its global ambitions.

"You see the rise and fall of Sears and others," McMillon said. "It's just a reminder that this can happen to us too."

Walmart CEO Doug McMillon on the future of the retail industry
Walmart CEO Doug McMillon on the future of the retail industry

Walmart has also got started on restructuring parts of Flipkart. 150 to 200 employees of Myntra and Jabong, two online fashion retailers under the Flipkart Group have been laid off. Since then senior executives have resigned from the company.

And the American retail giant is still convinced by Flipkart's data analytics and tech expertise and is planning to globally deploy it's knowhow into progressive web applications that they hope will provide a seamless shopping experience.

"In Flipkart's case, we know they have a number of systems they have innovated on that we are interested in." said Jeremy King, executive vice president and chief technology officer at Walmart in a interview with The Economic Times.

"We are going to build these things and then others who want to build that will work together," he added.