Is it online where the Business Future Lies? - A Short note on Flip-Mart Deal
by BookMy Parts Machinery Parts Ki Chalti Phirti DukaanFlip-Mart –Walmart Flipkart Deal - Walmart’s agreement
to buy a controlling 77% stake in Flipkart, the leading shopping site in India
with a market share of 55% is an ambitious move in the Indian e -commerce
industry. Walmart has purchased Flipkart for $ 16 billion when it has global
revenues of $ 500 billion. This appears to be a small piece to pay for a 55%
market share in a fast growing online retail market. This purchase gives
Walmart a running start in the Indian e commerce and it also has strong
financial muscle to compete with the deep pocketed rival Amazon.
An investment worth $16 billion for a 77% stake values
flipkart at $21 billion against $10.5 billion a year ago. Now the entire domestic
online retail market is valued at about $19 billion. Hence, Walmart paid a
premium to acquire Flipkart which makes it a winning proposition for Flipkart
too.
Questions were raised on the rationale behind
acquiring a huge loss making unit which could not make profit in its 11 years
of operations. With this thought, Walmart’s investors reacted negatively wiping
away $10 billion worth of the company’s market capitalization in early morning
trade on the NYSE.
Walmart’s stock reply to all of these questions was
that it had thought really hard about the investment, especially knowing
investors’ short-term expectations on cash flows and returns. Even so, it felt
that the long-term opportunity in a country with a population of 1.3 billion
was too large to ignore..
What Walmart didn’t say is that the acquisition would
also help it build a foundation in India, which will help when it plans a
larger play in the country’s offline retail market, whenever it is allowed to
do so.
Besides, Walmart was evidently impressed with
Flipkart’s product portfolio, ranging from an e-commerce marketplace, to
fashion retail, logistics and payments services. Perhaps paying a $16 billion
is not too high a price to get a strong market share in market which expected
to reach $1.3 trillion in the next 5 years.
With this transition, Indian retail players cannot but
take note. They should note that the greatest retail operator in the world,
Walmart, has realized that online is where the future of businesses lies. Propelled by rising smartphone penetration, the launch of 4G
networks and increasing consumer wealth, the Indian e-commerce market is
expected to grow vehemently in the near future. It is increasingly attracting
customers from Tier 2 and 3 cities, where people have limited access to brands
but have high aspirations.
In 2017, online retail grew to $17.8 billion in gross merchandise
value (GMV) from $14.5 billion last year, a 23 per cent increase. According to
some reports, the India e commerce market in India is projected to grow by 60%
in 2018. All these factors make Indian e commerce market a very attractive
market and conforms our opinion that online seems to be the place where the
world retail is headed towards.
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Created on May 28th 2018 02:04. Viewed 653 times.