Last week, we wrote about the imperatives driving Walmart’s mega-acquisition of Flipkart. Today, we look to the future. To paint a picture of what happens next at Walmart-Flipkart in India.
If you go by what the pundits are saying, the future can be described by only one word.
Immediately after the acquisition, Walmart’s share price has taken a sharp fall. Analysts all over the world are unanimous that the deal makes “zero sense” and have predicted dark days ahead for the company.
While these fears might well be true and justified for Walmart as a public-listed company in the US, at least from India’s perspective, they are largely irrelevant. Walmart’s share price and its performance in the US is of limited import to the rest of the world. The more interesting question is what does the future hold for Walmart-Flipkart in India. The answer to that can also be summed up in one word.
But not the same metaphorical “dark” as with Walmart’s stock price. This is a far more literal dark. Specifically, it refers to Walmart’s focus, on dark stores and dark warehousing to drive the next phase of Flipkart’s growth.
How does this work?
As we had pointed out in last week’s story, the government’s Foreign Direct Investment (FDI) policies had hitherto denied Walmart the opportunity to participate in a meaningful way in the Indian retail market. Acquiring Flipkart, technically classified as an online marketplace and hence allowing 100% FDI investment, gives Walmart a back-door entry into multi-brand retail.
However, this entry comes with conditions, specifically around disallowing branded physical stores, which is one of Walmart’s key strengths. Dark stores and dark warehouses allow Walmart an alternative way to cater to the Indian market without all the legal and regulatory hassles. These dark stores are like front-end shops in every major way, but with one big difference – they are not allowed to sell goods to customers who physically come to these stores and are not allowed to have any kind of branding or advertising at the store location (hence the use of the term “dark” to describe them).
The upside though, is that unlike front-end stores that require a lot of permissions, dark stores are not regulated as stringently. In Walmart-Flipkart’s omnichannel strategy, orders are placed online and they are fulfilled from the closest dark stores in the shortest amount of time possible. The convenience of online ordering meets the speed and near real-time fulfilment of offline stores.
So, let’s see how this plays out by answering a series of pointed questions.
Why are dark warehouses/stores important to Walmart-Flipkart?
The entire value proposition of dark stores and dark warehouses is sharpest for one particular type of retail goods—groceries and food items.