Wall Street investment bank and financial services company Morgan Stanley has predicted that the recent implementation of the revised foreign direct investment policy in India might leave a sour taste in the mouth for Walmart over its deal with Flipkart. This might turn out to be a case similar to what happened with Amazon in China and it might end up with Walmart exiting Flipkart if it can’t see long term profitability.
According to a report from Morgan Stanley recently, “an exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated.” This report comes after the implementation of the new FDI policy by the Indian government that went into effect from February 1.The FDI stated that the e-commerce platforms will not be able to sell products on its own platform that come from brands that are directly or indirectly owned by them. The policy also states that platforms can’t have more than 25 percent of its sales from private labels, which is to make sure the platforms can’t exercise any ownership or control over its own inventory. The logic behind the introduction of such strict FDI policy is to make sure that the e-commerce platforms can’t undercut the smaller vendors by offering discounted prices. We have written to Amazon for inputs on the same and will update when they reply back to our queries.
“There is a precedent for an exit as Amazon retreated from China in late 2017 after seeing that the model no longer worked for them,” reads Morgan Stanley’s report. “We estimate that Flipkart derives 50% of its revenue from this category, meaning Flipkart could face meaningful disruption and top-line pressure in the near term.”
Walmart spoke to Economic Times about the issue and commented, “Despite the recent changes in regulations, we remain optimistic about the e-commerce opportunity in India given the size of the market, the low penetration of e-commerce in the retail channel and the pace at which it is growing. As Walmart scales in India, the company will continue to partner to create sustained economic growth across agriculture, food and retail. Future investments will support national initiatives and will bring sustainable benefits to the country.”
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Amazon and Flipkart which happen to be the biggest online marketplaces in India have seen drastic fall in sales of about 25 to 35 percent since having to change its more reliable self owned sellers to others. Sellers on Amazon like Cloudtail and Appario Retail had to have their listings removed since February 1.