Will Reliance Entry Hurt Amazon, Walmart Presence in India?
The Indian retail e-commerce market which is dominated by Amazon AMZN and Flipkart at the moment holds immense potential. In fact, both the companies are trying to put their best foot forward in a bid to gain further traction in this prospective market. Both the companies are employing aggressive retail strategies, expanding seller base and distribution strength to get an edge over the other.
However, Mukesh Ambani, chairman of Reliance Industries, has put a spanner in the works with his plans of developing an e-commerce platform by combining Reliance Retail and Reliance Jio Infocomm, in a bid to bolster the presence of Reliance in the market.
Further, the platform will be based on online-to-offline (O2O) marketing program, which will aid in attracting customers online and allowing them to shop via offline channels. Consequently, the hybrid model bodes well for the interests of domestic brick-and-mortar stores as these will get a platform to showcase their products online, bolstering their sales numbers.
Additionally, this is likely to benefit the traditional Indian buyers who account for a significant share in the total Indian population and are hesitant to shop online due to issues regarding product quality.
India Holds Promise
Per the latest data from eMarketer, the sales figure in the e-commerce market of India is expected to reach $72 billion by 2022 from $32.7 billion in 2018.
The country is currently witnessing a digital explosion on the back of increasing penetration of smartphone and Internet. Notably, this trend was aided significantly by the initiatives of Reliance Jio.
According to the report from India Brand Equity Foundation, online shopping in the country is expected to reach $135.8 billion in 2018, surging 31% on a year-over-year basis.
Consequently, India remains a strong market for e-commerce businesses and a lucrative one for foreign and domestic investors alike.
Reliance Entry Intensifies Competition
We believe the entry of Reliance in the Indian e-commerce space will intensify the competition, which is likely to impact the shares of Amazon and Flipkart.
Amazon’s market share came in 44% as of April 2018, consequently maintaining its dominant position. Meanwhile, Flipkart accounted for 40% of the market share. Further, the monthly active users (MAU) of Amazon grew 40% while Flipkart witnessed growth of 30%.
Additionally, per the recent Citi Research report, Amazon is well poised to reap benefits from this growing market. The company is anticipated to generate more than $10 billion in revenues and nearly $1.5 billion of free cash flow by growing 23% annually till 2027.
Additionally, Amazon India is currently valued at $16 billion while Flipkart is valued at $20-$22 billion due to the Walmart WMT deal.
We note that these growth prospects are likely to suffer due to the growing number of potential entrants into the market.
E-Commerce Investments to Get Hurt
Indian e-commerce space’s invitation to Reliance does not bode well for the increasing investments of global retail and e-commerce giants in this market.
The retail giant Walmart has recently entered into a definitive agreement to acquire majority stake of 77% in Flipkart for $16 billion. This marks as one of the world’s largest e-commerce deals.
Additionally, Alibaba has invested $200 million in India’s Paytm Mall which is similar to its TMall. It has also invested in online ticketing platform, TicketNew. Further, it is planning to invest $250-$300 million in online grocer, Bigbasket and its payments affiliate Ant Financial has agreed to invest in food-ordering app Zomato.
Further, eBay has recently announced its plans to relaunch its Indian division, eBay India by selling its stake in Flipkart to Walmart. eBay India aims to start cross-border trade in India via its online platform which will benefit both Indian sellers and buyers.
Nevertheless, Amazon India has issued paid up capital of $2.7 billion toward Amazon Seller Services, its marketplace arm. Moreover, Amazon has almost 41 warehouses in India, a captive logistics unit and operates a payments arm. Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Consequently, the growing number of potential entrants into the market will continue to intensify the competition. Further, the entry of Reliance might impact the returns on the above mentioned stocks.
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