Walmart (WMT, Financial), the largest retailer in the world, has awakened from a sort of slumber, posting solid same-store sales numbers this quarter considering the overall state of the retail industry. Its performance has lifted market sentiment, which has driven the stock price up by more than 17% since the start of the year.
Confidence can play a huge role, and as the company’s same-store sales ticked up, the world’s largest retailer has pushed hard and fast into the ecommerce segment. It recently bought Jet.com, a fast-growing ecommerce company, for $3.3 billion, and Bloomberg reported that the company is in talks with Amazon India’s competitor Flipkart for an investment to the tune of $1 billion.
This is actually great news for Walmart investors. Unlike Jet.com, whose position in the U.S. market vis-a-vis Amazon (AMZN, Financial) is so small, Flipkart is a worthy competitor for Amazon in the Indian market. The ecommerce company was No. 1 in the country for a long time before Amazon recently pushed it off the top spot. The Indian ecommerce market is still in its early stages of development, and all ecommerce retailers in this market are bleeding money to gain market share and fuel expansion.
Amazon has also doubled down on its investments in India, announcing that it will invest $3 billion in the country on top of the $2 billion that was reported in 2014. Walmart’s international operations have been a huge letdown for the company because wherever it went, the “local business killer” tag followed.
The growth of ecommerce giant Amazon has put a lot of pressure on Walmart, and it is indeed a considerable threat to the the company’s future. If the company does make an investment in Flipkart as planned, my secret wish would be that it buy the company someday. It will be a huge win for Walmart in that it will be acquiring a stake in a successful ecommerce platform that has proven its mettle against Amazon. Besides, it will also have access to the talent that built the company from scratch.
From Flipkart’s point of view Walmart's deep pockets will level the playing field with Amazon and allow the company to compete with the giant on an even scale while Walmart will get quick access to the Indian market. Flipkart is aiming to ship 1Â billion products a month and serve 100 million customers by 2018 so it does have robust operations and has proved that its technology platform is as good as anyone else’s in the market.
Walmart has made its intentions clear by going after Jet.com and Flipkart. It knows and understands that ecommerce is not its forte. Its own ecommerce operations, in which the company poured billions, never really took off. Its revised strategy seems to be to buy or invest in proven ecommerce models in local markets, and with Flipkart it's certainly picked the right market.
If Flipkart proves to be a successful play, nothing is going to stop Walmart from expanding its online-only operations into as many countries as possible in the future. Amazon is already there, and Walmart needs only to follow it wherever it goes.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
Start a free seven-day trial of Premium Membership to GuruFocus.
