Walmart cut its earnings guidance for the fiscal year 2019, citing its acquisition of the Indian e-commerce company Flipkart — the retail giant’s biggest deal ever.
Judith McKenna, president and CEO of Walmart International, took the stage at the annual Investment Community Meeting on Tuesday to explain to investors why the $16 billion deal in May is vital for Walmart’s global expansion. Walmart may also be able to learn from its previous mistakes while expanding in China, where it was late to embrace the e-commerce boom.
“While e-commerce is only about 2% of retail sales today, it’s growing at four times the rate of total retail. And to give you some context for that, China was at 2% in 2009. And today it’s at 25%,” McKenna said. “So we have no doubt that e-commerce in India is the right place to be.”
India, which has a population of 1.3 billion with a median age of 28, is late to the e-commerce boom compared to other developed markets, but it is quickly gaining momentum due to increased internet users and cheaper smartphones. The e-commerce market has more than tripled since 2015. Mobile shopping and payments are poised for significant growth with more than 300 million smartphone users in India today.
E-commerce sales in India are expected to hit $32.7 billion this year, a far cry from $526 billion in the U.S. and $1.53 trillion in China, according to eMarketer data. By 2022, India’s e-commerce sector will be worth $71.94 billion.
McKenna explained why Walmart was willing to bid against Amazon (AMZN) to gain a majority stake in Flipkart. After losing the bid, Amazon has committed to spending $5 billion in India, where it sees the fastest Prime membership growth rate.
Walmart’s miss in China
Flipkart wasn’t cheap, but Walmart learned from its mistakes in China. In 1996, Walmart entered China and opened hundreds of super-centers across the country. But as Chinese shoppers embraced e-commerce, Walmart experienced a drop in same-store sales and it pulled back from opening more stores.
In June 2016, Walmart sold Yihaodian, an online grocery business in China, to JD.com, China’s second-largest e-commerce platform, just one year after buying the site. Last May, Walmart opened an online grocery store on JD.com to leverage JD’s logistics and delivery capability.
McKenna acknowledged that to conquer India, Walmart needs local expertise and talent. Flipkart has proven to be a leader of the fast-growing e-commerce market in India, accounting for nearly 40% market share, with dominance in key categories like apparel and electronics. Flipkart was founded by two former Amazon employees in Bengaluru, India in 2007.
“There are homegrown businesses with a strong team who are really focused on developing infinitive solutions for the Indian customer,” McKenna said. “This is a unique market and it needs a unique local approach, and that’s because there are many Indians. There are 22 different official languages across 29 states. The cities, towns and villages are at really different stages of developments.”
In the fierce competition, Walmart doesn’t plan to slow down. “In tandem with this shift to online and mobile usage, Flipkart, Amazon and Paytm Mall have been competing fiercely to claim their share of the Indian market. All three of these companies are making large investments, which include improved logistics and payment systems, as well as offering deep discounts,” Eric Haggstrom, forecasting analyst at eMarketer wrote in a report.
Walmart (WMT) shares rose by 2% on Tuesday, closing at $95.8 per share.
Krystal Hu covers e-commerce for Yahoo Finance. Follow her on Twitter.
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