Walmart is breaking into India's massive and growing consumer market, spending $16 billion for a controlling stake in the online retailer Flipkart, whose delivery drivers, with their motorcycles and oversized backpacks, have become ubiquitous across the nation of 1.3 billion people.
Online sales in India have exploded in recent years, totaling $19.6 billion last year, according to a Forrester report. Those sales are expected to grow far larger in 2018. Both Walmart and Amazon have pushed hard to catch up to Flipkart and to be the first major U.S. retailer to establish a substantial foothold in the country.
Flipkart's supply chain arm, eKart, serves more than 800 cities and makes 500,000 deliveries daily. Online sales totaled $19.6 billion in India in 2017, according to a Forrester report, and are expected to grow even larger this year. The International Monetary Fund has also projected that India's economy will grow 7.4 percent this year.
Walmart will own approximately 77 percent of Flipkart. The rest will held by some of its existing shareholders, including co-founder Binny Bansal, a former Amazon employee. Other stakeholders include Tencent Holdings, Tiger Global Management and Microsoft Corp.
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"India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of eCommerce in the market," said Walmart CEO Doug McMillon in a company release.
Walmart's business in India had previously been focused on small businesses. The company's India division owns and operates 20 Best Price stores, a membership-based wholesale operator.
Based in the city of Bangalore, Flipkart was founded in 2007 by two former Amazon employees, Sachin Bansal and Binny Bansal. The two men are not related.
Walmart has aggressively pushed into online sales in the U.S. to fend off Amazon. In China, where more than 700 million people are online, it has had a tough time competing with local players like Alibaba Group Holding Ltd. Walmart, which opened its first store in China in 1996 and has just over 400 stores, has also signed a strategic alliance with Alibaba's rival JD.com to help expand delivery services.
The head of Japanese technology company SoftBank Group Corp. said it had reached a deal to sell its Flipkart stake to Walmart. Softbank founder and CEO Masayoshi Son mentioned the agreement while discussing the company's quarterly results early Wednesday, but did not provide details.
The transaction is expected to close later this year.
Shares of Walmart Inc. dropped more than 4 percent before the opening bell.