BENTONVILLE, Ark. (AP) — Walmart is breaking into India’s massive and growing consumer market, spending $16 billion for a controlling stake in the online retailer Flipkart, whose delivery drivers, with their motorcycles and oversized backpacks, have become ubiquitous across the nation of 1.3 billion people.
Online sales in India have exploded in recent years, reaching $19.6 billion last year, according to a Forrester report. Those sales are expected to grow rapidly this year. Both Walmart and Amazon have pushed hard to catch up to Flipkart and to become the first major U.S. retailer to establish a substantial foothold in the country.
Flipkart’s supply chain arm, eKart, is established more than 800 cities and makes 500,000 deliveries daily.
Retail sales are being fueled by a hot economy in India. The International Monetary Fund has projected that India’s economy will grow 7.4 percent this year.
Walmart will own approximately 77 percent of Flipkart. The rest will held by some of its existing shareholders, including co-founder Binny Bansal, a former Amazon employee. Other stakeholders include Tencent Holdings, Tiger Global Management and Microsoft Corp.
“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of eCommerce in the market,” said Walmart CEO Doug McMillon in a company release.
Walmart’s business in India had previously been focused on small businesses. The company, based in Bentonville, Arkansas, opened its first wholesale outlets in India in 2009, but Indian law prevents it from selling products directly to people. Walmart’s wholesale stores, Best Price, which are owned and operated by its India division, are only open to members. Those members consist only of licensed businesses.
Based in the city of Bangalore, Flipkart was founded in 2007 by two former Amazon employees, Sachin Bansal and Binny Bansal. The two men are not related.
Walmart has aggressively pushed into online sales in the U.S. to fend off Amazon. It has also been expanding internationally, and had mixed success.
In China, where more than 700 million people are online, it has had a tough time competing with homegrown rivals like Alibaba Group Holding Ltd. Walmart, which opened its first store in China in 1996 and has just over 400 stores, has signed a strategic alliance with Alibaba’s rival JD.com.
The head of Japanese technology company SoftBank Group Corp. revealed early Wednesday that it had sold its Flipkart stake to Walmart. Softbank founder and CEO Masayoshi Son mentioned the agreement while discussing the company’s quarterly results, but did not provide details.
Rumors have swirled for weeks about U.S. retailers circling Flipkart. That has not gone down well with tens of millions of small traders in India, who for years have used political muscle to slow the arrival of international retailers.
The deal is “a clear attempt to control and dominate the retail trade of India by Walmart,” the Confederation of All India Traders said just after the agreement was announced, saying it would encourage predatory pricing, hurt Indian businesses and create an uneven playing field. The group says it represents some 60 million businesses.
Shares of Walmart Inc. dropped more than 5 percent before the opening bell.