Within a year after global retail giant Walmart had bought Flipkart for $17 billion, it is being reported that it could exit Flipkart, as the US retail firm does not see a long-term path to profitability, The Economic Times reported citing a Morgan Stanley report.
In a report dated February 4, Morgaon Stanley said, “an exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated”.
Walmart isn’t likely to consider divesting its stake in Flipkart, but at the end of the day it may be the right move if there is no longer a clear path toward achieving a profit in India, according to Morgan Stanley.
The Morgan Stanley report came after the new Foreign Direct Investment (FDI) rules for the e-commerce sector came into effect on February 1, post which not just Flipkart but Amazon has too has been impactedand saw a drop of around 25-35% in sales after having to re-arrange their seller entities where they held an equity stake.
Flipkart may need to scrap approximately 25% of its products from its site in light of the new rules. The smartphones and electronics category will feel an immediate impact because of the necessary changes which need to made in supply chains and existing exclusivity deals, said the brokerage report.
“We estimate that Flipkart derives 50% of its revenue from this category, meaning Flipkart could face meaningful disruption and top-line pressure in the near term,” it said.
A Walmart spokesperson told Economic Times, “Despite the recent changes in regulations, we remain optimistic about the e-commerce opportunity in India given the size of the market, the low penetration of ecommerce in the retail channel and the pace at which it is growing. As Walmart scales in India, the company will continue to partner to create sustained economic growth across agriculture, food and retail. Future investments will support national initiatives and will bring sustainable benefits to the country.”