Amazon in talks to buy 10% stake in Future Retail

The move comes close at the heels of Walmart's $16 billion payout to acquire 77% of Flipkart Indias largest e-commerce firm. Walmart is Amazons biggest rival in the US and has now become one in India, too.

In a bid to expand its offline presence, US based e-commerce giant Amazon is planning to acquire a 10% stake in Future Retail Limited, the company which owns offline retail shops like Big Bazaar and Easy Day, digital media FactorDaily reported this lately.

Three sources confirmed the development of deal between two retail giants. “Talks are in advanced stages, and might materialise in the next couple of weeks… there are other parties who have had discussions with Future (Retail), too, but Amazon has the best chance,” said a source with knowledge of the deal.

As per the second source, the deal values Kishore Biyani owned Future Retail at about $6 billion (Rs. 40,872 crore). Amazon might end up spending about $500-600 million to acquire the stake in Future Retail which has a market cap of $4 billion and is listed on the bourses.

“Everyone wants to dominate India’s retail market… Future has valuable insights on consumer behaviour through its brick-and-mortar presence,” said Raghu Viswanath, managing director of management consultancy firm Vertebrand. “In India the future is omnichannel — its neither only online or only offline.”

The move comes close at the heels of Walmart’s $16 billion payout to acquire 77% of Flipkart India’s largest e-commerce firm. Walmart is Amazon’s biggest rival in the US and has now become one in India, too.

Indian e-commerce market will be worth $202 billion in 10 years, and Amazon will have 35% of the market, Citi Research in its latest note on Amazon said. The bank also valued Amazon’s domestic operation at $16 billion, second to only Flipkart which is valued at $22 billion.

There’s a rider to the Amazon Future Group deal, said the third source. It doesn’t want Future Retail to continue with its e-commerce expansion. “Amazon is looking at an exclusive tie-up with Future Retail… that is holding back the deal,” the person said.

In October, Amazon had acquired 5% stake in Shoppers Stop for $26.35 million (Rs 179.25 crore). With Future Group it will move the needle forward in its online-offline strategy.

The other suitors

“If it was only Amazon alone, the deal would have happened much earlier… talks with some of the other companies are on but nothing has been finalised yet,” the first source told factor daily.

He added that Walmart and Alibaba are the other two companies in the fray to buy a stake in Future Retail. “Walmart has shown interest… Future (Retail) is evaluating the deal. After Flipkart’s acquisition, Walmart has become aggressive on India,” he said. Flipkart is the Bentonville headquartered retailer’s most expensive acquisition yet.

Another person familiar with the matter said that some months earlier there were discussions between Walmart and Future Retail. “Some exploratory talks had happened but nothing is there on the cards right now,” the third source said.

Meanwhile, Alibaba, founded by Chinese billionaire Jack Ma, has also shown interest in the Future Retail. “The talks happened some time back, but we have not heard anything from Alibaba lately,” said a fourth source, a senior Alibaba executive.

Paytm and Paytm mall, run by Vijay Shekhar Sharma has a bigger Chinese investor Alibaba, which is in rivalry with Amazon and Flipkart for market share. At its current state Paytm Mall has about 6% to 7% marketshare in Indian e-commerce, according to estimates.

Walmart, has come up with a new strategy post Flipkart acquisition, which includes helping Flipkart build a large food and grocery business and introduce new categories and services, among other products.

According to Doug McMillan, Walmart’s CEO, India is one of the two growth markets for the company. The other one is China. “If Walmart acquires a stake in Future Retail, it will have a dominating presence in Indian retail,” said Viswanath of Vertebrand.

Why Future Retail?

Kishore Biyani led future retail has acquired a good number of firms to consolidate leadership in India’s organised retail. Nilgiris, HyperCity, and Aadhaar from Godrej Group are just a few of them.

Abneesh Roy, Senior VP (research) at ‎Edelweiss Capital said, “Future has consolidated the market. There are only three big retailers left: Reliance Retail, D-Mart and Future Retail… Future is an attractive target.”