“As Flipkart is expected to generate meaningful losses for at least the next few years, this is clearly an investment for the future,” Moody’s analyst Charlie O’Shea wrote in a note.
“It’s typical of a business like this that, as you scale up, you will have losses. We expect those losses to continue for a little while,” Walmart’s Chief Financial Officer Brett Biggs said in a phone interview.
With the Walmart tie-up, Flipkart gets additional capital and expertise to battle Amazon, which has spent billions of dollars to gain customers in India. Online sales in the world’s second-most-populous nation are growing about 35 percent a year, according to data tracker Euromonitor, fueled by a rising middle class and urbanization that present an attractive environment for e-commerce.
“We’ve been looking at this business for some time. India needs no introduction; it’s a fantastically growing market. And it fits right in with our strategy,” Judith McKenna, Walmart’s international chief executive officer, said in a phone interview.
For the U.S. retailer, acquiring a stake in Flipkart enables it to tap into India’s retail market without building stores. Walmart once envisioned operating hundreds of locations across India but it has been unable to open traditional units because of long-standing governmental rules for so-called multi-brand international retailers. Walmart entered India in 2009 through a joint venture with Bharti Enterprises and took full control of that business in 2013. It currently operates 20 wholesale clubs in India that serve small businesses.
The deal is the largest-ever in e-commerce, according to data compiled by Bloomberg.
(Disclosure: This article is adapted from an article which is published in Bloomberg. You may read the full article here)
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