Forrester Analysis: What’s behind the Walmart-Flipkart deal
Walmart has been looking to get into the Indian retail market for more than 15 years but the regulation of not allowing foreign direct investment (FDI) into multi-brand retail has made it impossible for Walmart to access the Indian market. Walmart tried to enter via a wholesale model with Bharti in India but failed. Now they see online as the only method to enter the Indian market, which leaves Flipkart as the best investment option for Walmart.
What the deal means for Flipkart:
For Flipkart, this deal is more than just money. If they are looking to raise more funds they already have Softbank as a backer. However, to remain the number one player in India (Amazon coming a close second in just four years in India), they are looking to expand beyond smartphones and fashion. This deal with Walmart can provide Flipkart the expertise of running offline stores, access to sellers and manufacturers, supply chain and the know-how to get into the grocery segment.
Amazon has been selling grocery in India for the past one year while Flipkart has not rolled out this category. With Amazon closing the gap in categories other than fashion, Flipkart needs Walmart to remain competitive in the long term.
What the deal means for the Indian e-commerce market:
“According to Forrester Data, the Indian online retail market is around ~$20 billion in 2017 (2.4% of total retail market in India), which is still relatively small when you compare it to the penetration in other mature markets. The upside is big for both Amazon and Flipkart in the next two decades. No other market except China and U.S. can compete in terms of total retail opportunity. We expect the online retail market in India to reach $73 billion by 2022 from $20 billion in 2017.
To reach the next 100 million buyers, both Amazon and Flipkart will have to invest billions of dollars in warehousing, last mile delivery, and ensure that they provide quality products at low prices. This is a time-consuming process and both these companies need patient capital to capture the online retail opportunity.
For customers, the entry of Walmart is good news as they will get the best deal through competition between these companies. Also, an Amazon-Flipkart deal will certainly face regulatory hurdles from the Competition Commission of India. We should also expect investment from Amazon in an offline grocery player in India once this deal between Flipkart and Walmart is finalized.
Sears CEO: The company is still ‘fighting like hell’
Sears Holding Corp.’s turnaround may be taking longer than expected, but chairman and CEO Eddie Lampert is committed to moving forward.
At the company’s annual shareholders’ meeting on Wednesday, Lampert said that Sears has “tried to incubate our own capabilities” instead of making major acquisitions — a strategy used by competitors, such as Target and Walmart, according to CNBC.
In the report, he added said that Sears “is on the right path, but we haven’t gotten over the hump. We need to convert our vision into reality, [which has been] made much more difficult because the operating performance isn’t where it needs to be.”
During the meeting, Lampert reiterated that Sears is still “fighting like hell” to turn its business around through numerous steps it has taken throughout the past year, from adding partners, like Uber and GasBuddy, to improving service available on its Shop Your Way membership platform, CNBC said.
Sears’ executive team echoed Lampert’s commitment, adding that Sears “will continue to take actions to right-size the company, increase liquidity and capitalize on the value of its brands,” according to the report.
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Office Depot ‘encouraged’ by Q1; raises outlook
Office Depot Inc. reported first quarter sales and profits that exceeded expectations as it continues to transform itself from a traditional office supplies retailer to a services-led shopping experience with a broader business services platform.
The retailer’s profit dropped 65% to $41 million, or 7 cents a share, for the period ended March 31, compared with $116 million, or 22 cents, for the year-ago period. Office Depot attributed the decline in profit to narrowed gross margins from store and supply chain cost deleverage, and higher selling, general and administrative expenses.
Excluding items, Office Depot reported an adjusted profit of 8 cents a share for the quarter, besting analysts’ forecasts of 8 cents.
Sales rose 6% to a better-than-expected $2.83 billion from $2.68 billion. This compares with analysts forecasts of $2.72 billion.
Office Depot said its service revenues now make up approximately 14% of the company’s total sales, growing to $407 million from $216 million in the first quarter of 2017.
“I am extremely pleased that we continue to see positive momentum in our core businesses and delivered financial results in the first quarter which, although lower than the prior year, exceeded our recent outlook,” said Gerry Smith, CEO of Office Depot. “We achieved a major milestone this quarter with the Business Solutions Division reporting positive sales growth for the first time since 2012. This is largely driven by our focus on growing the customer base with our demand generation efforts and successfully expanding our offerings beyond office products.”
Citing its first quarter results, Office Depot increased its 2018 full-year outlook for sales, adjusted operating income and free cash flow. It now expects $10.8 billion in sales for the full year, up from its previous guidance of $10.6 billion. It also raised its adjusted operating income forecast by $10 million to $360 million and its free cash flow estimate by $25 million to $350 million.
“I am encouraged by the progress we’ve made so far this year to strengthen our core businesses and expand the service and subscription offerings to our B2B and business-minded customers,” said Smith. “Our strategic growth initiatives are gaining traction and we expect to continue building momentum throughout the year on this transformation journey to deliver long-term, sustainable growth.”