FINANCE

Walmart completes $16 billion acquisition of India’s e-commerce giant

BY Marianne Wilson

Walmart has completed the largest acquisition in its history — and gained more firepower in its fight against Amazon.

The discounter has completed its $16 billion investment in Flipkart, making Walmart the largest shareholder in the company with a 77% share. Flipkart is the largest e-commerce player in India, where online sales are expected to exceed $73 billion by 2022. It is touted as a direct competitor to Amazon, which considers India one of its key global markets. The online giant was also reportedly looking to acquire the Indian company.

Walmart’s investment includes $2 billion of new equity funding to help accelerate the growth of the Flipkart business. Both companies will retain their own brands and operating structures in India. Moving forward, Flipkart’s financials will be reported as part of Walmart’s International business segment.

Flipkart’s existing management team will continue to lead the business. Tencent Holdings Limited and Tiger Global Management will remain represented on the Flipkart board, in addition to independent board members, and will be joined by new members from Walmart. The remainder of the business that is not owned by Walmart is held by other shareholders, including Flipkart co-founder and group CEO Binny Bansal, Tencent, Tiger Global and Microsoft Corp.

Founded in 2007, Flipkart has led India’s e-commerce revolution. Flipkart’s supply chain arm, eKart, serves more than 800 cities, making 500,000 deliveries daily.

“Walmart and Flipkart will achieve more together than each of us could accomplish separately to contribute to the economic growth of India, creating a strong local business powered by Walmart,” said Judith McKenna, president and CEO of Walmart International. “Our investment will benefit India by providing quality, affordable goods for customers, while creating new skilled jobs and opportunities for suppliers. As a company, we are transforming globally to make life even easier for customers, and we are delighted to learn from, contribute to and work with Flipkart to grow in India, one of the fastest-growing and most attractive retail markets in world.”

The Flipkart investment enhances Walmart’s position in a country with more than 1.3 billion people, strong GDP growth, a growing middle class and significant runway for smartphone, Internet and e-commerce penetration. As Walmart scales in India, the company said it will continue to partner to create sustained economic growth across agriculture, food and retail.

“We are poised and ready to deliver the full value of this partnership for India,” said Bansal. “By combining Walmart’s omnichannel retail expertise, supply chain knowledge and financial strength with Flipkart’s talent, technology and local insights, we are confident that together we can drive the next wave of retail in India.”

Walmart first announced it would acquire Flipkart in May. It estimated the deal would have a negative impact of $0.25-$0.30 on earnings per share (EPS) for fiscal 2019.

A local trader body, the Confederation of All India Traders (CAIT), has opposed the Walmart-Flipkart deal from the start, saying it would create unfair competition and drive local convenience stores out of business. The group plans a protest across India on September 28.

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Fast-casual, $300 million restaurant deal backed by founder of Panera Bread

BY Marianne Wilson

Zoës Kitchen is being acquired in a deal that will create the nation’s largest restaurant operator in the Mediterranean category

The fast-casual, 261-unit Zoës has entered into a definitive agreement to be acquired by privately held Cava Group, operators of the fast-growing Cava chain. The combined company will have 327 restaurants in 24 states throughout the U.S. The deal was valued at approximately $300 million.

Cava, which also sells its chef-crafted dips and spreads in more than 250 Whole Foods Markets nationwide, operates 66 restaurants. It expects to have 75 locations by the end of 2018.

The acquisition of Zoës Kitchen will be financed through a significant equity investment in Cava led by Act III Holdings, the financial group created by Ron Shaich, founder, chairman, and former CEO of Panera Bread. Shaich will serve as chairman of the combined company; Brett Schulman, current CEO of Cava, will serve as its chief executive.

“As a close observer of the fast-casual restaurant industry, I am thrilled at the prospect of what Cava and Zoës Kitchen can accomplish together,” said Shaich. “Together these businesses will create the leading company in one of the most important categories in fast casual today — Mediterranean — with the capabilities to drive extraordinary customer satisfaction and powerful growth.”

Zoes’ sales have been on the decline according to Restaurant Business, while Cava has been on the upswing since it was founded in 2011. The tech-savvy chain, which takes a data-driven approach to its operations, made Fast Company’s “The World’s Most Innovative Companies” list in 2018.

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Analysis: How Nordstrom bucks department store gloom

Nordstrom has bucked the gloom associated with other department stores and has posted a strong set of second quarter numbers. Total sales rose by a very robust 7.1%, though this includes a helpful shift in revenue recognition from the Anniversary Sale. This benefit was, however, only the cherry on top of a good underlying performance which saw comparables increase by a solid 4.0%.

On the bottom line, net income increased by 47.3%. As well as higher sales volumes, this healthy uplift was aided by less promotional activity and lower rates of discounting. In our view, much of this is down to the fact that Nordstrom has worked hard to create a compelling and differentiated assortment, especially in fashion, which has both protected margins and stimulated sales growth.

Indeed, as other department stores suffer from the withdrawal of premium brands, Nordstrom has actively developed proprietary labels and partnerships. This has allowed the company to stand out in a sea of sameness and has given customers a reason to visit.

An excellent assortment is not the only area where Nordstrom has succeeded. In our view, the company has, for a long time, invested in its retail proposition. This means that it has far fewer legacy issues, such as a long tail of shabby stores in need of investment. In turn, this ensures that gains in sales fall quickly through to the bottom line.

Historically, Nordstrom has also been savvy at making sound strategic decisions at the right time. One of these was to develop and grow the Rack business, which has provided a strong stream of growth over the past few years. This quarter was no exception with the off-price business growing by 7.1% on a total basis and by 4.0% in comparable terms. This comes as a slight relief after a softer performance last quarter which was caused by a sub-optimal product mix and some issues with inventory. That Nordstrom achieved much better numbers this time around underscores the continued value and relevance of its off-price division.

Looking ahead, we see a number of further significant opportunities in off-price. These include increasing the penetration among male shoppers and doing more in categories like home. Both of these things, along with future store openings — especially in Canada — should help Nordstrom to achieve further growth.

In the full-price part of the business, comparable sales grew by a comfortable 4.1%. However, total revenue was dragged down by the sales return reserve allocation. Over the period a more confident consumer traded up to higher-end fashion products which helped Nordstrom’s sales. From our data, it was clear that out of all the mainstream department stores, Nordstrom benefitted most from this upswing in spending at the premium end of the market.

Online and omnichannel also played a role in Nordstrom’s growth. Over the same period last year, digital sales increased by a respectable 23%. This is a little way above the total market indicating that Nordstrom is still gaining share online. Nordstrom has worked hard to create as seamless a shopping process as possible, including the introduction of Nordstrom Local stores, and this is paying dividends. In our view, its advanced thinking gives Nordstrom a significant opportunity to further improve the shopping experience across all channels and bolster its share.

Overall, Nordstrom is in good shape. It is certainly benefitting from the strong consumer economy, but it is also helping itself to superior growth.

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