Walmart (NYSE:WMT) seemed to be on a roll in India. There have been reports that the American big-box retailer has been enjoying a nice run in the country's booming e-commerce space at the expense of rival (NASDAQ:AMZN). But the reality seems to be different as the loss-laden Indian operations of Walmart have forced the company to make some tough calls that could negatively impact its prospects in that market.

Walmart beats a retreat in India

Indian daily business newspaper The Economic Times reports that Walmart is handing over pink slips to a third of its management team based out of the country's headquarters in the city of Gurgaon. More than 100 senior executives will lose their jobs across various verticals, including fast-moving consumer goods, agri-business, and sourcing.

A miniature shopping cart on a computer depicting online shopping.

Image source: Getty Images.

The bad news doesn't end there, as Walmart is also planning to shutter its fulfillment center in Mumbai -- India's financial capital. That's worrying as the Mumbai fulfillment center is Walmart's largest warehouse in the country. It was opened in late 2017 to provide local mom-and-pop stores with home supplies and packaged consumer goods.

The Economic Times report also adds that Walmart will put a hold on the expansion of new stores in India, having disbanded its real-estate team. Walmart operated 28 Best Price stores (based on the cash-and-carry format) in India in addition to three fulfillment centers. In 2018, the company said that it was planning to increase its Best Price store count to 50 in three years.

But that might not be possible anymore, as the latest developments signal a retreat for Walmart in India.

What's more, Walmart India could go through another round of lay-offs by April, according to a source cited by the Indian newspaper. The company has reportedly taken these steps to restructure its Indian operations thanks to the heavy losses the Best Price stores have been suffering.

The accumulated losses of the Best Price operation stood at 2,181 crore rupees (roughly $307 million at the current exchange rate) at the end of March 2019. The business was not showing any signs of a turnaround as Walmart's losses in India ballooned from 91 crore rupees in fiscal 2018 (roughly $13 million at the current rate) to 172 crore rupees ($24 million) in fiscal 2019.

So, Walmart is now looking to cut its losses and has reportedly given its Indian division a mandate to find a way to turn the business around or "face a massive scaledown," a person with knowledge of the matter told The Economic Times.

All of this is bad news for Walmart's prospects in India. The expanding chain of Best Price stores would have been critical in powering the growth of the company's Flipkart e-commerce division and its hybrid online-to-offline model. Walmart had been tapping into local mom-and-pop stores to expand its reach in India through its network of cash-and-carry stores.

But now that the company has decided to put a hold on store expansion as it evaluates the next step, it could end up falling behind Amazon and local player Reliance Retail.

Resourceful rivals could race ahead

Walmart's rivals in India are increasingly focusing on the hybrid model that combines online and offline retail to corner a bigger share of the country's e-commerce opportunity. Amazon, for instance, has been boosting its physical store network in India by acquiring stakes in local supermarkets and hypermarkets.

Amazon's recent partnership with Indian hypermarket chain Big Bazaar could help it deliver groceries quickly across 130 cities in the long run. Meanwhile, Amazon's stake in More -- India's fourth-largest supermarket chain -- has the potential to boost the e-commerce giant's footprint across 540 stores in India.

Reliance Retail's e-commerce venture JioMart will be another headwind for Walmart as the former has ambitious plans of connecting 200 million Indian households with 30 million offline retailers. JioMart has started testing its e-commerce venture in Mumbai, the very market where Walmart is facing a scaling down of its operations. And Reliance could quickly scale up JioMart thanks to its network of more than 10,000 stores across 6,600 Indian cities and towns.

Walmart's decision to scale down its physical footprint at a time when its rivals are doing the opposite might not be a prudent one. Short-term losses are probably weighing on Walmart India's mind, though that should not have been the case given the massive opportunity the country's e-commerce business might provide in the long run.

India's e-commerce market is expected to be worth $200 billion by 2026 as compared to just $38.5 billion at the end of 2017. A progressive strategy from Walmart would have increased its chances of making a bigger dent in India's consumer discretionary space -- especially after its acquisition of Flipkart -- but it remains to be seen how things play out after the company's latest move.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.