Earlier this year Walmart closed its takeover of Indian e-commerce giant Flipkart. We noted at the time that the timing wasn’t necessarily perfect for the US retailer, but the opportunity certainly was:
Analysts at Forrester Research predict that Indian e-commerce sales will amount to $27 billion and grow at 26% per year over the next five years. If that’s true, it would make India the fastest growing large e-commerce market, if still way behind the likes of China in terms of overall value.
Four months on, Judith McKenna, Walmart International President, remains hugely enthused by the potential of this passage to India:
Today's population in India is 1.3 billion people. They have a median age of just 28. There's a developing middle class and GDP growth. And the Indian economy is projected to be the third largest in the world by 2030.
It’s also one that’s incredibly e-commerce receptive, she adds:
This is a market that I can promise you is generation-skipping. There are more than 300 million smartphone users in India today. And while e-commerce is only about 2% of retail sales today, it's growing at four times the rate of total retail. To give some context for that, China was at 2% in 2009 and today it's at 25%. So, we have no doubt that e-commerce in India is the right place to be.
India is however not a straightforward market to move into, which is why having the footprint provided by an indigeneous firm is so useful. McKenna notes:
Flipkart is already a very successful business. They've built significant scale and momentum, and have got leading positions in key categories like mobile, appliances and apparel. They're a home-grown business with a strong team who are really focused on developing innovative solutions for the Indian customer. This is a unique market and it needs a unique local approach. That's because there's many Indias - there's 22 different official languages across 29 states; there’s cities, towns and villages at really different stages of development.
She cites a recent trip to India where she visited a rural farming community and an urban location as a case in point:
They were extraordinarily different experiences. One of the states that I was in, Uttar Pradesh, if it was a stand-alone country, by population it would be the fifth largest in the world. Flipkart's leadership team understands these differences. They're making customer-focused decisions and customer-focused solutions, and it's an integral part of their approach and their success.
Flipkart is certainly an Indian success story. It closed its financial year in March 2018 with net sales of $4.6 billion and 64 million e-commerce active customers. The firm is also building out its ecosystem, says McKenna:
Flipkart is the core platform. It represents around 80% of total revenue for the group through a broad category offer. They have got a true passion for solving problems unique to that Indian customer, whether it's in the product that they sell or the technology platform that they've created. From day one, the Flipkart team recognized that bandwidth would be an issue for smartphone users. So, they designed that app to be able to use the smallest possible amount of data and it's a real advantage for them.
And they've applied that kind of thinking to categories as well, such as mobile phones.
They were the pioneers in this category and they partnered with suppliers to develop a full range of products across price points. They've even created their own successful private brand called Billion to increase affordability without losing functionality. And to round out the offer, they introduced a guaranteed buyback program, warranty and repair services, and installment payment options.
So, you can see that what Flipkart have done is actually built out an important relationship with the customer through a mobile phone. Access and affordability brings in new customers, while service and reliability builds trust and earns repeat business. It's just one example of their laser-like customer approach. But they've also got leading positions in many of the categories that count.
They're also looking to continue to build out their customer offer, whether it's appliances, furniture, apparel, books, electronics, but they've also recently entered into grocery, starting with a small pilot in Bangalore and plans to expand into three more cities this year. That's an area that as they learn from the trial, we really think we're positioned to support them.
Flipkart also runs two speciality fashion sites, Myntra and Jabong, which McKenna praises for their vision to “make the world a more stylish, colorful, and happier place”. But it’s the underlying tech that she focuses in on:
It's not just their leadership position and assortment that's impressive, their innovation in technology is as well. I was there recently and I was able to test their shoe sizing functionality on their app. It uses Augmented Reality to measure the size of your foot…the result is you're happy because you get a shoe that fits.
Some innovations have effectively been forced on Flipkart, says McKenna:
As Flipkart grew, none of the existing delivery partners were able to keep up with them. So, they created their own logistics service called eKart, another key part of the ecosystem. It picks up from sellers, it operates fulfilment centers and it delivers to customers. They provide a personal doorstop service. With a network of fulfilment centers that serves 90% of Indian ZIP codes, eKart have a low cost to serve model with one of the broadest reaches in India. Today, they deliver on average around 600,000 packages a day. And at peak, they'll deliver more than 1.5 million.
Another exemplar McKenna points to is PhonePe, a digital payments platform:
We're really excited about the possibilities here. It's a business only launched in September 2016. They designed their app to work with an interface that was developed by the Indian government for inter-bank transactions called UPI. Because they were an early mover, they're already becoming, or they've already become, India's second largest payments company.
Today, they have 130 million app installations, 100 million monthly transactions and as of September, their annualized Transaction Processing Value (TPV), was $32 billion. To give you some idea of a perspective for this, in their last quarter, TPV grew by over 1,000% year-on-year. That growth is impressive. But what I really like about them is that PhonePe is an open platform that helps create real stickiness for the customers who use it. They can send money across the country in real time simply by exchanging a phone number with another user. They can pay for anything, from utilities and mobile charges to insurance premiums and credit card bills. You can even buy and sell gold online, which if you understand India, you'll know it's a really important category.
But at the same time, PhonePe are expanding their reach. For example, they have micro-apps that allow you to pay for your ride share through Ola, book a hotel room through OYO, or even pay for your meal at any McDonald's in India through the PhonePe app. But the real advantage for them is they recognize they're not going to win with a single use case. They're providing simple solutions for customers to send, spend, manage and grow money. And I promise you their tech team that is delivering this is really impressive. We've seen in other markets around the world how powerful payments and financial services can be. And that's why we're excited about this particular part of the system.
Overall, the Flipkart acquisition is a savvy move by Walmart, concludes McKenna:
They're focused on the unique needs of the Indian customer. They're leading in key traffic-driving categories such as apparel and mobile. They're innovating in the use of data and AI, not only to serve and acquire customers, but to drive efficiency and lower costs. And they're building out a sticky ecosystem that includes PhonePe, a tailor-made digital platform anchored in payments, all with a foundation of a strong management team at all levels through the organization, who have the vision and the expertise to win.
With Amazon also upping its interests in India, the Flipkart gambit is one that will be a major indicator of future success for Walmart in a market that’s only going to get tougher, admits McKenna:
We expect to see strong competition in India. We were aware of that when we entered the transaction and we're prepared for it. Flipkart was successful in a very competitive market long before we came along. But one of the things I really like about the Flipkart team is they keep their focus firmly on their customer on how to serve them, not on what everybody else is doing. That customer focus is part of who they are as is their entrepreneurial spirit.
In the third part of this series, e-commerce chief Marc Lore talks through his to-do list.