Amazon’s Future Retail deal goes beyond tackling Flipkart
Published Date | 2018 December 4
A deal with Future Retail will give Amazon a head start in offline presence as against Flipkart, which doesn’t have any stores but its parent Walmart has a growing wholesale business in India.India: Future Group founder Kishore Biyani is negotiating an agreement with Amazon that will give the US-based online retailer the option to acquire Biyani in the future. The e-commerce giant is in an advanced stage of talks to buy a 9.5% stake in Future Retail Ltd. Amazon has been testing the waters with stakes in smaller offline companies, including Shoppers Stop Ltd and Aditya Birla Group’s food and grocery retail chain, More. A stake in Future Retail will be a far bigger step in marrying its online presence with offline stores. This acquisition will positively help in the market growth of the retail sector and consumer goods industry on a whole in the near future. Future Retail has a strong store distribution compared to that of its peers. Other large physical retailers with comparable formats have a markedly lower store footprint with coverage that spans only about 50% of Future Retail’s locations. Future Retail had 1,336 stores, including 284 Big Bazaar stores, covering 15.4 million sq.ft, across 373 cities. According to BlueWeave Consulting, Amazon may get an edge if it decides to acquire Future Retail. It will give Amazon a head start in physical outlets compared to Flipkart. While Flipkart doesn’t have any stores right now, Walmart has a store-based wholesale business that is growing. It’s only a matter of time before Walmart uses its local and global expertise in store-based retailing to open stores in India. Amazon is getting ahead of that, while Walmart deals with the transition of owning Flipkart. A hybrid retail model is becoming important, given that pure online retailers have not generated profits. On the other hand, intense competition from e-retailers has weighed heavily on offline retailers. Combining both may lead to a sustainable route to making profits. As the Indian retail sector evolves, with offline and online channels vying for a share of the booming market, investors can expect more consolidation. This growing interest in offline retailers gives investors an opportunity to benefit from any improvement in valuations, either due to the presence of a strategic investor or an interest in raising their equity stake. Thus, this acquisition will positively help in the market growth of the retail sector and consumer goods industry on a whole in the near future. According to the upcoming report by BlueWeave Consulting on “Global Retail Market, By Product Type, By Distribution Channel, By Region- Industry Analysis, Size, Share, Growth, Trends & forecast by 2018-2025”, the global retail industry market is projected to grow significantly during the forecast period. The retail market is mature and highly competitive in the developed economies of North America and Europe. However, the developing economies of Asia-Pacific, Middle-East & Africa, and Latin America have been helpful in driving market growth. Consumer spending, which usually accounts for around two-thirds of the GDP, has been a key factor behind the growth of retail market. Furthermore, the growing craze for online shopping has been a major driver. In addition to that, the growing smartphone penetration across countries is driving the e-commerce channel. Also, Internet of Things (IoT) is restyling the retail industry. It is being positioned to transform the industry. However, the price disparity between online and brick & mortar stores can challenge the retail market growth.