Flipkart after Walmart: Inside the near future of India’s largest e-tailer

Sunny Sen May 15, 2018 13 min

Sachin Bansal had stopped going to the office about a week before Walmart issued a press statement announcing its intention to acquire a majority stake in Flipkart.

Walmart, the world’s largest retailer, said it is buying 77% of Flipkart for $16 billion on 9 May 2018. Sachin Bansal’s stake in Flipkart (about 5.5%), was worth nearly $1 billion.

He was: the co-founder and executive chairman of Flipkart; the chief executive officer at Flipkart for 9 years; the big thinker and by recent accounts, glum about the way things ended for him.

Sachin was 26 when Binny, 24, followed him to start Flipkart in 2007. The two Bansals and a handful of early employees built the company side by side for years. “If Binny was the heart, Sachin was the soul of the company — they built it together,” a senior Flipkart executive recalls.

In 10 years, the company which started in a two-bedroom apartment in Koramangala became India’s most valuable internet company. But in January 2017, the two founders ceded control of the day-to-day operations at Flipkart to Kalyan Krishnamurthy, until then an emissary of Flipkart’s biggest investor Tiger Global. He was brought in to regain lost ground and fend off Amazon, which was catching up fast.

Few months into the new setup, Sachin came up with the idea of launching a private label brand called Billion. The plan was to sell Billion branded mobile phones and electronic goods to consolidate Flipkart’s market share in the category. “The Billion team worked as a separate team, not part of the mobile phones category. It had the startup culture,” said an executive (source 2) with Flipkart, on the condition of anonymity.

Billion was supposed to be his comeback story. No one was allowed to talk about Billion to the press except Sachin. On 17 April this year, when Flipkart announced a partnership with Taipei-based phone maker Asus, this reporter asked Ajay Yadav, vice-president — mobiles and large appliances, about Billion. A spokesperson quickly interjected: “We would refrain from commenting on Billion.” Yadav quickly turned the discussion to the partnership.

When Sachin stopped going to the office earlier this month, the team was confounded. “We did not get any mail, nor a goodbye letter from Sachin. Suddenly we didn’t know where we stood,” said a member (source 3) of the team.

On the day of Walmart’s announcement, Binny assured that they would have a role to play in Flipkart’s new avatar. Later that morning, Krishnamurthy, met the team of about 20 people and told them that they’d have to join Flipkart’s private labels team. By now, it was clear that Binny Bansal, currently the group CEO at Flipkart and Kalyan Krishnamurthy, the CEO of Flipkart, will continue at the company. It was also clear that Sachin’s journey with Flipkart had ended. In an earlier report, we had said that Binny Bansal, co-founder and group chief executive of Flipkart, may exit the company once Walmart buys it and Sachin might stay on.

Sachin’s exit continues to raise questions about what went wrong. A company insider asked: “Was everything okay between Binny and Sachin. Why did Binny hire Adfactors, another public relations firm for his own self?” Some stories in India’s biggest startup exit continue to elude us.

Shutting down Billion is but a small thing in the larger scheme of things. The big question now is: what will Walmart do with Flipkart? How? Will Walmart finally get to be the retailer to India’s burgeoning middle class which will buy goods worth over $1.3 trillion by 2020? What’s the play?

FactorDaily spoke to about a dozen people who know Flipkart well and have been closely associated with the Walmart-Flipkart deal to piece together this story. An email sent to Flipkart for the story was unanswered.

Flipkart will fortify its leadership with Binny Bansal and Kalyan Krishnamurthy in charge, a working group at Walmart to steer joint operations, freshly groomed talent from within the ranks and Walmart executives including Steuart Walton on the board. The company will also launch a set of services including a Prime like loyalty program and go big on grocery sales in the months to come as it fends off increasing competition from Amazon.

Let’s start with leadership.

Binny and Kalyan in charge

About 5,000- 6000 Flipkart employees, a.k.a Flipsters, assembled on the ground floor of Flipkart’s office at Embassy Tech Village in Bengaluru on the day of the Walmart announcement. The speech was short, an employee recalled, Binny Bansal announced Sachin’s departure and added that Walmart will only help Flipkart grow. Business won’t be disrupted, he assured.

To ensure continuity, Binny and Kalyan have been asked to steer Flipkart. “We are so impressed by the ecosystem that Flipkart has built… We are going to stay out of their way,” a global Walmart executive said. “Both of them will run operations,” said the fourth source adding that Walmart has devised a way to work closely with Flipkart.

A working group is being built at Walmart to talk to Flipkart’s leaders. The group, will work on new initiatives, build technology, supply chain, and play a role in key decisions.

Binny Bansal, will continue at Flipkart. Photo: Rajesh Subramanian/ FactorDaily.

Steuart Walton, grandson of Walmart founder Sam Walton will join Flipkart’s board along with Walmart chief executive officer Doug McMillon, president of international business Judith Mckenna and Dirk Van den Berghe, the regional CEO of Walmart Canada and Asia. Krishnamurthy and Binny will also be on the board, sources said. The Walton family owns 51% of Walmart.

Walton is not new to the business. He sits on Walmart’s board. He founded Game Composites, an aircraft maker. He is an attorney and has worked in the office of Republican Senator Peter Fitzgerald. He was also part of the mergers and acquisitions team of Walmart and oversaw the acquisition of Carnaby Street, the London-headquartered fast fashion store.

But Walton’s business prowess will be tested in India. Walmart has chosen for itself to be a low-cost operator, lead in the country by volume and compete with the likes of Reliance Retail and Big Bazaar. “It will be a learning ground of Steuart Walton… India is a different market. It’s not like the US or UK, or Japan,” said source 4.

Meanwhile, one of the areas where there has been some challenge is building the second tier of leadership at Flipkart. “Kalyan handpicked some of the people and made them vice-presidents. Most of them lack leadership qualities,” said the third source. After three rounds of top leadership changes between 2014-17, Flipkart’s top management had thinned out when Krishnamurthy took charge.

Kalyan Krishnamurthy, CEO, Flipart | Photo: Rajesh Subramanian
Kalyan Krishnamurthy, CEO, Flipkart | Photo: Rajesh Subramanian

To fix some of the leadership challenges, Krishnamurthy has recently hired Mridula Sankhyayan as senior director, learning and development. A former Goldman Sachs and Nomura executive, Sankhyayan’s job at Flipkart is to coach future leaders.

Take on Amazon

On Friday, when Krishnamurthy addressed employees at a monthly event, he was casually dressed in blue jeans and a brown shirt. He told employees that Flipkart will change in coming months and will stop discounting just to buy growth. Rather, it will invest in areas where businesses that won’t just make losses for the sake of getting customers. The focus will be to retain customers.

It was in March that he had first told a group of employees about Walmart’s inclination to buy into Flipkart. “Flipkart has reached a certain level where it needs a lot of capital in the long term… Money spending will continue for a much longer period of time,” he told them. Walmart and Flipkart have been in talks for many months now. Way back in 2016, FactorDaily had asked Binny if the talks between the two companies were serious and Binny had dismissed the idea at the time. There’s no smoke and no fire, he’d said.

Walmart was one such company that was ready to stay invested so Flipkart wouldn’t have to constantly worry about raising capital to cover cash burn, estimated between $20-30 million a month.

For years, the US retailer has tried to sell directly to Indian consumers. Walmart called off its joint venture with Bharti Enterprises in 2013 to go it alone in the country. The US retailer had been lobbying in India for a policy regime favourable for it to start retailing in the country but those efforts came to nought. It also ran into controversy as allegations of bribing local officials surfaced as part of a probe into the company’s working in Mexico.

India’s foreign direct investment policy in retail forbids Walmart from setting up brick-and-mortar stores in India. Buying into Flipkart gives Walmart its much desired retail presence in the country. It will also look to tap into Flipkart’s acumen in online retailing, as it puts up a fight against arch-rival Amazon. Moreover, businesses like Myntra, Jabong and PhonePe don’t exist in Walmart’s portfolio, and India is one of the two growth markets for Walmart.

“India and China is where we have to succeed if we have to succeed as a global retailer,” the Walmart executive said. In countries where brick-and-mortar business can blend with e-commerce, it wants to do that. In countries like India, where the regulations don’t allow them direct entry, it will take the route of investing in an e-commerce major.

In India’s e-commerce market, Flipkart has almost 60% market share while Amazon’s share is somewhere around 30%, according to a report by investment banking firm Morgan Stanley on May 13. But there’s lot more juice in India’s retail market. Analyst predict that it will grow to $1.3 trillion by 2020.

Walton’s presence on the board will soon be visible, and so will Walmart’s intention to squeeze a large market share out of India’s e-commerce. In the next five to six months Flipkart is planning to launch a series of new products and services that will grow the company and increase its lead over Amazon.

For starters, Walmart has decided to put in fresh investments of $2 billion. “One of the reasons we’ve put the $2 billion of primer in as well is to allow the business to continue to grow for the future, and that’s really important in this market,” McKenna told analysts after the deal was announced.

The fourth source added that every year Walmart might end up investing $1-2 billion to grow the business. Flipkart has cash reserves of about $4 billion from earlier investments. Much of the new money will go into building a better supply chain. “We think that one of the ways that we can help support the business is with our expertise in supply chain and e-commerce supply chains, as well as retail supply chains,” McKenna said.

But money is just one part of the business. Flipkart had lost some of its urban customers as Amazon’s Prime raised the bar on service quality and for added measure threw in freebies like video-on-demand and streaming audio. Flipkart wants to plug those gaps as well. “In metros quicker delivery is important. Rather than discounting we will invest in building those capabilities,” said the fourth source.

Flipkart is also working on a Prime-like loyalty program, likely to be launched in time for the annual Big Billion Day sales, said the source. The service is already being tested.

Also see: Big Billion Grin: How Flipkart, under CEO Kalyan Krishnamurthy, sailed through its Big Billion Days 2017

With the loyalty program, Flipkart wants to reel in shoppers from smaller towns and cities as the market opens up. “The main idea is to find the next 100 million users. We are not worried about the metros,” the source quoted, said. “Growth in the sale of mobile phones has dropped and so have sales in metros,” the fourth source added.

And then, Flipkart wants to have its own voice assistant too. It is in talks with Microsoft to build a voice assistant that will help take e-commerce to buyers in rural India — an easy solution for those who can’t type. There’s a growing realisation at the company that the next 100 million shoppers will use voice to search and order products. “It will be in regional languages, too,” said the fourth source. “The tech team is looking at the use of voice inside the Flipkart app.”

Perhaps, this is why Google wants to buy into Flipkart. The search giant, which is investing heavily in its artificial intelligence powered Google Assistant, is said to have held talks to invest about $3 billion into Flipkart. That deal hasn’t come to fruition yet.

That’s not all.

Flipkart is also likely to add tickets and hotel booking through its partnership with Gurgaon-based online travel platform MakeMyTrip. In the next couple of months it will be a full-fledged product, at least two of the sources confirmed. It will also double down on furniture as a category. According to internal estimates, Flipkart already has about 30% of online furniture sales. By the end of 2018, it will launch categories like pharmacy and healthcare, and gems and jewellery. But the biggest push will be on grocery — a big and lucrative category in which Alibaba backed BigBasket reigns supreme.

Grocery: Walmart’s holy grail

In 2018, Flipkart has plans to launch grocery sales in four to five metros. The idea is to involve Kirana stores in the model. “Grocery has to become big… This has to go into the back end to tie-up with the last mile delivery,” the source said. At the heart of the Kirana store model is PhonePe, the UPI-based payments company Flipkart acquired in April 2016. “In the next few years, there are plans to install five million point-of-sale PhonePe terminals… That will help in modernising the kirana stores,” said the fifth source.

Also see: Unpacking Paytm Mall’s ‘New Retail’ play

With PhonePe, the neighbourhood grocer will be able to purchase directly from Walmart’s cash-and-carry business. Also, grocers will be able to take money from customers on PhonePe when his goods are sold on Flipkart. In an offline mode, the grocer can use the PhonePe device to take money from customers visiting the store. Walmart expects more people to come to Flipkart to buy products if they are comfortable with online transactions.

“Moving forward Flipkart will leverage Walmart’s experience, benefit from its mature growth curve, grocery and supply chain knowledge and financial strength…,” said the Walmart spokesperson. Both the companies are looking at synergies that converge at the Kirana store level. Walmart’s cash and carry business in India is likely to play a role here.

The spokesperson added: “Walmart’s cash and carry business here supports Kiranas and Flipkart, through a number of touchpoints, whether it’s the marketplace itself, or PhonePe, also help support the success and modernization of Kiranas. The combined strengths of both can help grow the marketplace as well as help farmers.”

It won’t be easy, as is evident from the fact that Amazon, which acquired a license to retail food products in India back in July last year, is still testing waters. According to experts, partnering with companies like HUL, P&G, among others isn’t the toughest part, selling fresh fruits and vegetables to Indian households will be.


Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.