American retail giant Walmart, which had gobbled up the Indian e-commerce platform Flipkart one and a half years ago, is finally reaping some benefit from its transaction worth USD 16 billion.
Walmart on Tuesday said e-commerce contributed 12% of the total international sales for the quarter ended January 31, “led by Flipkart and online grocery sales in several markets.”
The world’s largest retailer posted the revenue of USD 141.7 billion, an increase of USD 2.9 billion, or 2.1% over the last year. Of the total net sales, USD 33 billion was contributed by Walmart International, showing a growth of 2.3%.
“We remain excited about the opportunity we have there (in India). The way Flipkart and PhonePe are scaling is impressive,” Doug McMillon, CEO of Walmart, said in his post-earnings presentation to investors and analysts in New York.
Brett Biggs, executive vice president and chief financial officer of Walmart, said Flipkart’s results were in line with the company’s expectations. According to the Arkansas-headquartered company, Flipkart currently gets one billion visitors a month, with monthly active customer growth of 45% recorded in the last one year. It said Flipkart’s transactions per customer increased by 30% in the same period.
Regarding Flipkart, Biggs said, with any change in economic conditions, currency rates, and the tax and regulatory landscape, there can be some disruption to the business, but “we feel good about our ability to transition with minimal interruption.”
“There’ll be some additional costs to comply with the new regulations, but we don’t currently believe they will be significant enough to impact total company guidance for the year,” he added. It is to be noted that the Indian e-tailer is still reeling with losses as it expands into hyperlocal grocery delivery. Flipkart had posted an increase in losses amounting to USD 226.4 million in FY19, up from USD 161.7 million in FY18.
Flipkart ventured into e-grocery with Supermart in May 2018, its second attempt at grocery delivery after it shut down Nearby—its initial product for grocery delivery—in 2016. Since late last year, the e-tailer has stepped on the gas with aggressive promotional offers including selling household items at INR 1 (less than a US dollar).
To build its delivery and supply-chain muscle for its e-grocery business, in December 2019, Flipkart invested USD 60 million in Bengaluru-based hyperlocal delivery startup Shadowfax and an undisclosed amount in fresh produce supply chain startup Ninjakart along with its parent company, Walmart.
This January, in its bid to set its foot firm in the soon-to-be USD 10.5 billion online food and grocery market in India, Supermart added fresh fruits and vegetable delivery in its kitty by partnering with vendors in order to tap recurring demand from consumers. Flipkart has also applied for a food retail license which will allow the company to own food inventory. With the permit, Flipkart plans to open physical stores for groceries and fresh food later this year, similar to what Softbank-backed e-grocer Grofers is doing.
Meanwhile, Flipkart and rival Amazon India have been facing increasing retaliation from small offline retailers over deep discounting practices. Last week, the Karnataka High Court granted an interim stay on the probe ordered by the Competition Commission of India’s (CCI) to find out if Flipkart and Amazon India are influencing prices by offering discounts, giving preferential treatment to select sellers over others, and forging exclusive ties with brands. The industry body, the Confederation of All India Traders ( CAIT) has filed an appeal against the high court’s order.
McMillon said although the things that have happened are disappointing in some way, they haven’t shaken the company’s confidence and excitement about what this is going to mean to the company long-term.
“This isn’t a story about one quarter or even one year. We hope to have an effective and productive dialogue as it relates to future changes that happen. But in terms of how the business has behaved, it’s in line with what we thought it would be.”
Biggs believes with Flipkart, the company is creating an entire ecosystem of services in India.
“Flipkart is already an ecosystem. There’s the PhonePe, a payment platform. There’s a last-mile delivery. There’s a Myntra and Jabong businesses in apparel. So it’s not just one thing,” Biggs said. “And it’s just not an e-commerce business in the traditional sense, there’s a lot of dimension to it.”
According to McMillon, e-commerce growth in India, the size of the market, the growing middle class, all these “things are still as true today as they were six months ago. So the reasons we’re excited about the market are still there.”