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Disappointed Over Tweak in Ecomm FDI Law: Walmart

February 20, 2019 05:54 AM


Disappointed Over Tweak in Ecomm FDI Law: Walmart
Co’s revenues rise 3.1% to $140.5 billion, buoyed by the acquisition of Flipkart


Walmart chief executive officer Doug McMillon said it was disappointing that the Indian government had changed norms for foreign direct investment (FDI) in ecommerce without consultation and hoped for a more collaborative process going forward.

“We were disappointed in a recent change in law and the lack of consultation, but the team has worked to ensure we are in compliance with the new rules,” McMillon said in an investor call. “We hope to have an effective productive dialogue related to future changes that happen.”

The government tightened norms that came into effect on February 1, prohibiting marketplaces from selling products of affiliates and stipulating that such entities cannot exercise ownership or control over inventory. Ecommerce firms including Walmart-owned Flipkart and Amazon were also asked to provide services such as warehousing, logistics and advertising to all sellers in a fair manner. It barred ecommerce companies from entering into pacts for the exclusive sale of products as well.

“The things that happened have been disappointing in some ways, but they haven’t shaken our confidence and excitement about what this is going to be to the company (in the) long term,” added McMillon, following the earnings announcement for the fourth quarter ended January with revenues rising 3.1% to $140.5 billion.

Reiterates Amazon’s Stance

Walmart’s financials included Flipkart for the entire quarter for the first time.

Walmart’s latest commentary reiterated rival Amazon’s stance on how the new FDI policy for ecommerce could affect customers and sellers. “We don’t think the changes help in those dimensions for both the customers in India and also the sellers,” Brian Olsavsky, chief financial officer at Seattle-based Amazon, had said following quarterly earnings earlier this month.

Walmart, the world’s biggest retailer, acquired Flipkart last May for over $16 billion, drawn by India’s vast consumer base. Walmart said the gross profit rate for its international business fell 116 basis points primarily due to Flipkart, indicating the Indian online firm’s deep discounting strategy has weighed down profitability.

In its FY20 guidance, Walmart said consolidated operating income will decline by a low single-digit percentage range including Flipkart, but will increase by a low single-digit percentage range excluding the Indian ecommerce company. However, the guidance also included an impact of at least 3% on consolidated net sales growth positively through the acquisition of Flipkart but dragged down by the deconsolidation of Walmart Brazil and tobacco sales reduction at wholesale chain Sam’s Club.

While announcing the Flipkart acquisition, Walmart had said it expected FY19’s earnings per share to be eroded by about $0.25 to $0.30, including incremental interest expense related to the investment

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