WMT Walmart Inc

By Preetika Rana, Rick Carew and Sarah Nassauer 

Wal-Mart Stores Inc. is in discussions with Flipkart Ltd., India's largest e-commerce company, about investing in the startup, according to a person familiar with the situation.

If the two sides can agree on some way to join forces, it would give Wal-Mart a chance to gain a better foothold in Asia's third-largest economy, a market that has long eluded the world's largest retailer. It would also give Flipkart much-needed capital and a powerful partner in its battle against Amazon.com Inc. to become the dominant online retailer of the South Asian nation.

A Wal-Mart spokesman in India declined to comment on a possible deal Wednesday. A Flipkart spokeswoman also declined to comment.

A Wal-Mart investment in Flipkart would be in line with a recent shift in its e-commerce strategy aimed at turning around years of sluggish online growth and competing with the increasingly formidable Amazon.

Earlier this month, Wal-Mart completed its acquisition of U.S. online discounter Jet.com Inc. for $3.3 billion, the largest-ever purchase of an e-commerce startup. In June, it sold its Chinese e-commerce business to JD.com Inc., the second-largest online retailer in China after Alibaba Group Holding Ltd., in exchange for a 5% stake in JD.com.

Wal-Mart's e-commerce sales hit nearly $14 billion, or 3% of its $482 billion in annual revenue last year, but quarterly e-commerce growth has slowed in recent years. Amazon's revenue was $107 billion last year, including its web-services business, its growth far outpacing that of Wal-Mart.

Analysts say a Flipkart investment could help Wal-Mart make inroads into a country that has otherwise been challenging for the Bentonville, Ark.-based retailer's brick-and-mortar operations.

In 2013, after years of lobbying for greater access to India's 1.2 billion consumers, Wal-Mart shelved plans to build supermarkets in the world's second-most populous nation, saying the rules to do so were too tough. Indian law requires foreign retailers source at least a third of their products locally. Wal-Mart currently runs 21 wholesales stores in India, none of which are allowed to sell directly to consumers.

For Bangalore-based Flipkart, which blossomed into India's largest e-commerce company from a small online bookstore, a Wal-Mart alliance would serve as ammunition to step up its fight against Amazon and other Indian competitors, such as Jasper Infotech Pvt.'s Snapdeal.com.

Amazon, Uber Technologies Inc. and other startups have turned to India -- one of the last big untapped frontiers for big global brands -- as China's economy slows. Some experts estimate that just 50 million people or 4% of India's population regularly shops online, but believe the market will someday bloom as China's did. Morgan Stanley says Indian online sales will hit $100 billion a year by 2020, up from $3 billion in 2013.

Flipkart and other Indian startups, however, have been finding it tougher to raise money in recent months as investors tighten the purse strings. Indian e-commerce startups that have burned millions of dollars funding deep discounts on everything from smartphones to shoes, and analysts expect a shakeout in the sector.

Some investors valued Flipkart at $9 billion this year, according to a banker familiar with the company, compared with $15 billion last summer, when it received funding from existing investors. Flipkart held discussions with JD.com for a possible investment a few months ago, but that didn't result in a deal, a person familiar with the matter said.

Meanwhile, Amazon said earlier this year it planned to invest an additional $3 billion in India, taking its total investment in the country to $5 billion.

Newley Purnell and Juro Osawa contributed to this article.

Write to Preetika Rana at preetika.rana@wsj.com, Rick Carew at rick.carew@wsj.com and Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

September 28, 2016 10:13 ET (14:13 GMT)

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