Amazon finds India’s Reliance Retail too expensive for a minority stake

Amazon is now in talks with Max Retail for a minority stake.

Photo by Christian Wiediger on Unsplash

Owing to India tightening its foreign direct investment (FDI) rule and Reliance Retail’s high valuation to the tune of USD 42 billion, the four-month-long negotiations between e-commerce giant Amazon and India’s largest brick and mortar retailer might have turned sour, local media Economic Times said, citing two executives in the know.

Now the Seattle-based company is reportedly in talks with another Indian retail chain Max, which generated sales of about USD 493 million in fiscal year 2018-19.

Jeff Bezos-owned Amazon was eyeing for 26% stake in Indian billionaire Mukesh Ambani’s retail chain of stores to give a fight to the Walmart-owned Flipkart in India. One of the executives said, even a minority stake in Reliance translates to a huge pay out for Amazon. Amazon doesn’t want to take the risk of shelling out this kind of money in an unstable ecosystem where the FDI rules has been tinkered with on multiple occasions.

Falling under the pressure from retailer’s association CAIT, India in December 2018 modified its FDI rules for online marketplaces to level the playing field. According to one of the rules, India forbids foreign e-commerce companies from owning more than 26% stake in an Indian seller.

“Amazon has been exploring options to acquire a stake in every leading brick-and-mortar retail chain with a sizeable presence and proper processes in place. It is part of their omni-channel strategy and also making an entry as a strategic investor in case FDI regulations ease in retail,” one of the two executives told Economic Times.

Right now, Amazon is pushing its plan to partner with a local retail giant with Max, a fashion retail chain owned by Dubai-based Landmark Group. Incidentally, Amazon and Max are already in a trading arrangement where the latter sells its products online, exclusively on Amazon India.

Last month, Amazon India bought 49% stakes in Future Coupons, which runs 1400 hyper-retail chain under the brand name Big Bazaar. A year ago it had acquired More, another retail chain in the country.

Similar to Amazon, China’s Alibaba was also in discussions with Reliance, wherein Alibaba was to buy a minority stake in the Indian retailer to get an entry into the India market. The talks however, could not take off as both the parties couldn’t agree on the valuation.