Disappointing. That’s how Walmart Chief Executive Doug McMillon chose to describe the company’s travails with Flipkart, the Indian e-commerce behemoth it bought for $16 billion in May 2018. McMillon was speaking on a conference call to discuss Walmart’s performance for the quarter ended January 2019. One where its gross profit from international sales slid thanks to Flipkart, its largest acquisition.
Despite this, McMillon insisted that the company’s “confidence and excitement” around Flipkart’s long-term potential remained unshaken. If not shaken, though, Walmart’s resolve has surely been tested since. Its international gross profit slid in the quarter ended July 2019. Once again, thanks to Flipkart.
This is not an ideal position for the world’s largest retailer, which spent big on Flipkart in a bid to take on arch-nemesis Amazon in India. Bottomline-focussed Walmart is, after all, answerable to shareholders. Already, its investors have voiced concern about Flipkart’s high cashburn.
This hasn’t been an easy time for Flipkart either. Walmart’s focus on profitability has meant a change to the very DNA of the free-spending, growth-at-all-costs company.
Fifteen months in, Walmart is mulling hiving off payments provider PhonePe. It is bringing down the Chinese wall between fashion e-tailer Myntra and its mass market cousin Flipkart Fashion. Already, Flipkart has stalled its hyperlocal plans and has seen a management reshuffle at the top of its in-house logistics arm, Ekart, according to two executives at the company.
And where there is Walmart, a push towards its greatest strength, groceries, is never far behind. In October, Walmart set up a food retailing unit—Flipkart Farmermart—with an authorised capital of Rs 1,845 crore ($258.4 million) to expand its grocery business, according to company research platform Tofler. This is a step up for Flipkart, which set up its online grocery unit, Supermart, only in 2017.
Apart from looking to play to its traditional strengths, Walmart has an eye on the strong growth of India’s online grocery market. Reports forecast it will grow at a compound annual growth rate (CAGR) of about 68.7% between 2018-2023.
Beside a push towards groceries, analysts say that Walmart’s fingerprints can also be seen in a heightened focus on controlling costs.
But Walmart is far from done. While the company expects Flipkart to negatively impact its net income for the year ended January 2020, it clearly expects the e-commerce firm to start adding to its balance sheet sooner rather than later.