Walmart has a tough battle ahead in India

By Andy Mukherjee

E-commerce in India is a political and regulatory minefield. US consumer giant Walmart Inc. — which has been waiting to launch the much-anticipated initial public offering of the online marketplace it acquired for $16 billion six years ago — has had its patience tested. It’s unlikely to get Flipkart out the door next year: A 2026 IPO may be a more reasonable expectation, with a little diplomatic help from the incoming government in Washington.

The business side of things is not the reason for the delay. Flipkart is the country’s largest e-commerce player, ahead of Amazon.com Inc. The homegrown app lacks the consumer-service finesse of its rival, but its sheer reach across a continent-sized geography gives it the heft that took the likes of Unilever Plc a century to build.

That’s what makes the public float, preferably an IPO in Mumbai’s capital market, an important device for signaling Walmart’s long-term commitment — and an attractive proposition for investors even amid India’s slowing economic growth.

Flipkart is a stake Walmart has put down in a market where brick-and-mortar foreign retailers face stifling restrictions. That’s not an immediate problem; it might take a decade before Indians have the purchasing power to sustain a franchise like Sam’s Club, the Bentonville, Arkansas-based firm’s members-only warehouse division that is defying China’s consumption funk. The question is, will New Delhi be ready for Sam’s Club in 10 years?

Walmart has already spent nearly two decades waiting for local regulations to become a little more welcoming of its investment dollars. The firm’s partnership with Sunil Mittal, the Indian telecom czar who was going to prize open the market for the US retailer in 2007, ended six years later. Even Walmart’s second shot — the Flipkart acquisition — has had to constantly tiptoe around regulations that forbid foreign-backed e-commerce platforms from owning inventory.

On paper, that rule is all about safeguarding livelihoods of the corner kirana stores, tens of millions of tiny enterprises catering to 1.4 billion consumers. In reality, though, mom-and-pop shops are being shielded only from the Americans. The laws that target Walmart and Amazon are not about size or dominance, but the color of money. This is laughable because even large Indian players like Mukesh Ambani, the country’s richest tycoon who’s also its biggest retailer, have tapped billions of dollars from global investors: It’s all greenbacks, all the way.

Indian retailers, offline and online, can be as creative as they want in flexing their financial muscles, but foreign-owned e-commerce platforms aren’t allowed to use their deep pockets to exert influence on behavior. India’s Enforcement Directorate, the federal financial-crime agency, recently raided some Flipkart and Amazon sellers to investigate if they’ve been breaking the foreign-investment law, Reuters reported last month. The commerce minister in New Delhi has accused the platforms of “predatory pricing.”

Separately, India’s Competition Commission has asked the US firms to share their financial statements so that it can determine how much to fine them after a four-year-old investigation. Flipkart can’t possibly sell shares before it knows how much it has to pony up. The anti-monopoly watchdog could impose a charge of as much as 10 per cent of the global turnover of Indian entities.

E-commerce is just about 5 per cent to 6 per cent of India’s retail market, compared with more than 35 per cent in China. Lack of competition is a far bigger pain point for consumers in industries such as aviation, where the near-total control of the domestic market by just two airlines means high prices and limited choice.

The story in e-tailing is just the opposite. Thanks to the billions of dollars flowing into fueling India’s craze for quick commerce, consumers nowadays expect the T-shirts and light bulbs they order at 4 a.m. to arrive by 4:10 a.m.

Investors may well figure out in a few years that the 10-minute gratification model of Indian startups like Blinkit, Zepto, or Swiggy Instamart is not really something that can be sustained outside of big cities. The economics will be prohibitively expensive. But while the exuberance lasts, Walmart will also flank its mainstream online marketplace with Flipkart Minutes to compete. So will Amazon.

If anything, quick commerce might be a bigger headache for Ambani, whose retail empire has had a “forgettable year,” according to the brokerage Jefferies, marked by store closures, weak revenue, and rising competition in a slowing economy.

Ambani, too, would be looking to spin off the retail unit from his flagship Reliance Industries Ltd., which is underperforming both the benchmark index and analysts’ expectations. As long as Flipkart and Amazon are stuck in the labyrinths of regulatory scrutiny, Ambani has time to fix his moat.

But a delayed Flipkart IPO could just become a lightning rod for the incoming Trump administration to negotiate hard for US firms’ access to Indian retail. To avoid a trade war, New Delhi may have no option except to offer concessions and dial down its protectionist regulations. That’s when Walmart’s India acquisition, the biggest-ever deal in its history, would truly pay off.