Things looked grim for Walmart (NYSE:WMT) in India at the beginning of 2020, as the retail giant laid off a number of senior employees and also appeared to have put its expansion plans on hold. But now it appears that the American big-box retailer had a slightly different strategy in mind to go after India's bustling e-commerce space.
According to Indian financial daily The Economic Times, Walmart has started converting some of its wholesale cash-and-carry stores in India into fulfillment centers. As per people having knowledge of the matter, the newspaper reports that six of the company's 28 Best Price cash-and-carry stores will be turned into fulfillment centers, and more could follow.
Walmart is reportedly taking the help of consulting firms to get ideas about how to use its existing network of cash-and-carry stores spread across India as Flipkart fulfillment centers. Such a move could help Walmart in two ways as it goes after India's huge e-commerce opportunity.
Walmart makes a smart switch
Walmart has already pinpointed Flipkart as one of its key growth drivers as far as the e-commerce business is concerned. E-commerce supplied 12% of Walmart's international revenue last quarter, thanks to Flipkart's growth.
Walmart management seemed impressed with the way Flipkart is scaling up. This is probably why they have decided to scale up the latter's delivery infrastructure by converting the loss-making Best Price stores into fulfillment centers. With an accumulated loss of rupees 2,181 crores (around $300 million) over the years, it wasn't making sense for Walmart to keep pouring money into Best Price.
The company could be making a smart move by restructuring those stores into fulfillment centers, as this will help it speed up delivery times and branch into new verticals such as grocery and appliances.
According to Walmart, a Best Price store is spread over more than 50,000 square feet and offers over 5,000 products across several categories such as packaged goods, fresh fruits and vegetables, electronics, and appliances, among others.
Flipkart has already entered the food retail market in India with FarmerMart in a bid to tap into the $500 billion annual grocery market, and the Best Price stores could give this initiative a shot in the arm.
The FarmerMart initiative got off the ground last month with a pilot project in the city of Hyderabad. Flipkart is delivering vegetables and fresh fruits to customers with the help of local vendors. Turning its Best Price stores into fulfillment centers can strengthen the supply chain of Flipkart's food retail business.
Meanwhile, Flipkart should be able to deliver home appliances to more locations in India with the help of Best Price, as the cash-and-carry stores already sell those items. This will give Walmart access to another fast-growing market. Online sales of home appliances in India are expected to make up 12% of the overall market this year, up from just 3% in 2017.
In all, the conversion of Best Price stores into fulfillment centers can give Flipkart's supply network a solid boost on the whole. The company reportedly has over 60 fulfillment centers in India, while its Best Price stores are spread across nine states. As such, the Best Price network can complement Walmart's existing supply chain network in the country.
B2B prospects will get a shot in the arm
Walmart has already made it known that it plans to expand its business-to-business (B2B) e-commerce sales in India through Flipkart. There are reports that Flipkart has been supplying goods to local mom-and-pop stores around Delhi, India's capital.
Inc42, a media platform covering the Indian start-up ecosystem, was told by a Flipkart spokesperson:
We view the B2B segment as an opportunity to support and grow kiranas and SMEs in the country... Technology can play a critical role in making the kirana ecosystem very robust and efficient.
Kiranas are local mom-and-pop stores in the Indian parlance, and there are more than 15 million of them in India. A bigger fulfillment network will allow Flipkart to supply goods to more of these local shopkeepers. So, the conversion of Best Price stores into fulfillment centers bodes well for Flipkart, as it is reportedly preparing to launch a new wholesale business unit in the coming months.
In the end, it can be said that Walmart's new strategy looks promising, as it will not only strengthen its delivery infrastructure in India but also allow it to boost its presence in new, fast-growing consumer discretionary verticals.