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Walmart Vs Amazon Game on: Flipkart Deal to Play a Big Role?

Zacks

Guess What? Walmart Inc. WMT might just win the next level in its game against Amazon AMZN. Incidentally, both these players have long been at loggerheads, and eyeing India’s leading e-commerce player – Flipkart for quite some time now. Markedly, chances that Walmart will win this round are higher, as reported by some sources.

While both companies are trying to scoop up a major stake in India’s number one online player, currently valued at roughly $20 billion, it looks like Flipkart is more inclined toward teaming up with Walmart. Incidentally, there were rounds that this supermarket giant is already in advanced talks to buy about a 51% stake in Flipkart for $10-$12 billion and has already concluded a due diligence on the latter.

Walmart or Amazon: Who Will Win the Flipkart Deal?

Though there hasn’t been any official confirmation from Walmart, Amazon or Flipkart, sources revealed that Flipkart is bent toward Walmart. This is because that a deal with the latter would encounter fewer regulatory hurdles, in comparison to Amazon, as Walmart doesn’t have any online retail existence in India.

On the contrary, Amazon is India’s second largest online player, which also makes it Flipkart’s direct and biggest competitor. Thus, Flipkart and Amazon together would create a monopoly in the Indian online retail space, making it tough for them to clear regulatory hurdles. Apart from this, giving the stake to Walmart will also help Flipkart’s founders to continue helping in leading the business.

However, it is still too early to be confident about a Walmart-Flipkart deal, as Flipkart’s biggest stakeholder — SoftBank Group — appears to be more in favor of collaborating with Amazon, given the latter’s commendable feat in the e-commerce space. Also, Amazon is likely to try all means to win the deal, as Walmart’s investment in Flipkart would intensify competition and make things tough for Amazon.

Well, this e-commerce king is firing on all cylinders to get the top position in Indian online retail – after its failed efforts to dominate the e-commerce market in China. Apparently, Amazon India has been planning to slash prices and ramping up investments to grab a bigger slice of the market share in the Asian country. Also, rounds were made that this online biggie offered a breakup fee of nearly $1-$2 billion as part of its bid to buy considerable stake in Flipkart.

Can Stake in Flipkart be a Game Changer?

Clearly, both Amazon and Walmart are vouching to strike a deal with the Bengaluru-based online retailer. If Walmart wins it, it will help the big-box retailer expand its international reach, after bolstering position in China, Mexico Canada and the UK. While Walmart already operates in India under 21 wholesale stores, its ability to establish its own brick-and-mortar stores gets restricted by the huge costs associated with setting up stores in a nation like India, alongside certain limitations on foreign ownership for multi-brand retailers.

Thus, if this deal materializes, it is likely to strengthen Walmart’s position against Amazon, by helping it leverage the large market Flipkart caters to. On the flip side, investment from the world’s largest retailer will benefit Flipkart by helping it boost its grocery business. Flipkart, which sells almost everything ranging from cosmetics to electronics, has been concentrating on the food and grocery space. At such a juncture, investment from Walmart is likely to be a perfect choice, given its vast experience in the space.

Notably, Walmart has explored every nook and cranny to combat the growing dominance of Amazon, which sports a Zacks Rank #1 (Strong Buy). These endeavors have Walmart, a Zacks Rank #3 (Hold) stock to rally 20.3% in a year, surpassing the industry’s 16% gain. In fact, Walmart is not the only retailer which is taking incessant strides to stay firm in the Amazon-dominated retail world. Retail behemoths like Target TGT, Kroger KR and Kohl’s among many others are also undertaking several efforts to stay firm in the race. (Read More: Walmart Heats Up War With Amazon: How Are Others Placed?)

In fact, owing to this heated competition, price wars, aggressive promotions and waning store traffic have become major hurdles for companies in the Retail-Wholesale sector, that is currently ranked among the bottom 6% of all Zacks sectors. Nevertheless, retailers’ dedicated efforts to evolve with the changing trends and drive top line has helped the sector surge 24.6% in a year’s time, easily surpassing the S&P 500’s gain of 16%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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