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Walmart's bigger worry in India is Flipkart, not its cash-and-carry business

Ajita Shashidhar     January 14, 2020

Is there anything to read between the lines in the recent news of layoffs in Walmart India's cash and carry business? The retailer has let go off 56 employees, and eight of them are senior employees. The news doing the rounds is that the world's biggest retailer doesn't see merit in running a loss-making cash-and-carry operation in India. The Rs 4000-odd crore cash-and-carry business is known to have accumulated losses of Rs 2,181 crore as of March 2019. Retail industry experts don't find these layoffs as an indication of Walmart writing off its India investments. "Every company, even giants such as TCS are rationalising their workforce. There is a pressure on profitability in every sector," points out Arvind Singhal, Chairman of retail consultancy, Technopak. Krish Iyer, President and CEO, Walmart India has also clarified Walmart's commitment to the Indian market and has said that the restructuring was needed to offer more efficiency in India.

The cash-and-carry retailer that has around 27 stores in the country has indeed been under pressure compared to its counterparts such as Metro Cash and Carry, which is now profitable after having been around for 15 years. Industry observers say that Walmart needed to restructure its business to stay afloat. "Walmart's overhead costs are too high, their stores sizes are in the region of 1-1.5 lakh sq.ft. compared to the likes of Metro whose average store sizes are in the range of 40,000-50,000 sq.ft. Cash and carry retail is a business of wafer thin margin," explains a senior retail expert. In fact, Walmart's bigger worry is Flipkart and not really its cash and carry business. As opposed to the Walmart cash-and-carry business's Rs 172 crore loss in FY19, Flipkart's wholesale arm posted a loss of Rs 3,585 crore, while the market place arm, Flipkart Internet, posted a loss of Rs 1,624 crore in FY19.

The $16 billion Flipkart acquisition has been impacting Walmart's growth globally. Walmart International's operating income in the September quarter of FY19 saw a 46.2 per cent dip to $600 million from $1.2 billion in the September quarter of FY18. Although Flipkart has reported a successful Big Billion Sale in 2019, the perception of retail experts is that it has not been able to thrill the consumer as much as Amazon has been able to do.

In fact, both Amazon and Flipkart have launched their ecommerce grocery business, but with big daddy, Reliance Retail, also entering the fray with Jio Mart, the retail gurus say that the journey will not be easy for both the American retail giants.

Despite the law allowing 100 per cent FDI for online grocery retail and even allowing them to have private brands in grocery, Reliance Retail with its might of 11,000-odd brick-and-mortar stores has a huge competitive advantage. Reliance also has the added advantage of 50 million telecom consumers through its Jio network.

There are too many odds against Amazon and Walmart in India. Walmart especially has a huge challenge of turning around Flipkart, because of which it has got lot of flak from its stakeholders globally.

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