500 Million Reasons Walmart Can Succeed in India

Retail giants Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN) are locked in an intense battle for a piece of India's lucrative retail market.

Walmart made a smart move with its $16 billion acquisition of a majority stake in local e-commerce player Flipkart, which was completed earlier this year. Walmart is looking to create a comprehensive retail network in the country using Flipkart's delivery infrastructure, its own stores, and a wide network of mom-and-pop shops.

Amazon, however, seems to be stealing a march over Walmart, as it has already started tapping local shopkeepers in India's far-flung areas to boost its sales network.

Not surprisingly, Walmart has now decided to step on the gas with a new plan that's going to cost the big-box retailer $500 million over the next four years.

Walmart's latest salvo

Walmart recently announced that it will boost its network of cash-and-carry stores -- which are aimed at selling items to retailers and other businesses -- to 70 in India by 2022. The company has just opened its 23rd such store in the eastern part of the country, and 19 of them have reportedly already hit breakeven thanks to a solid membership base of over a million members.

Seventy percent of these members reportedly are small mom-and-pop stores, which buy goods at wholesale prices from Walmart's cash-and-carry stores and then retail them. So the company is aiming to bring more such small stores into its ecosystem over the next four years by massively ramping up its cash-and-carry footprint in the country. This is a really smart move on Walmart's part, as it can combine the strength of Flipkart's logistics network with the large volumes of local shops to cement its place in India's retail space.

Amazon has a plan, too

Amazon is following a novel way of reaching remote customers in India. The e-commerce giant is using local shop owners as agents, who take orders from customers for various products ranging from electronics to groceries and other everyday items that aren't readily available in rural areas. Once the shopkeeper-cum-agent places the order with Amazon, one of its delivery partners ensures that the goods reach the shopkeeper as soon as possible.

Then it is the responsibility of the shop owner to get the goods to the customers. This is a smart way to expand sales and educate consumers about online shopping in areas beyond metro cities and big towns. However, it won't be surprising to see Walmart doing this better.

According to Walmart, a typical cash-and-carry store is spread across an area of 50,000 square feet, selling an assortment of around 5,000 items, including clothing, fruits, vegetables, frozen food, dry groceries, and other merchandise. The majority of the customers who buy goods from these stores are shopkeepers.

The big-box retailer should be able to easily recruit hundreds of thousands of shopkeepers as its agents from the cash-and-carry store locations. These shopkeepers can then spread the word about Flipkart in their areas and also act as mini fulfillment centers for any orders the local population places on the e-commerce platform.

So, while Amazon needs to go out and recruit shopkeeper-agents, Walmart will have 70 huge locations across the country where it can target a ton of potential prospects. More importantly, Walmart should be able to service these locations efficiently, as Flipkart has been aggressively investing in its logistics network.

Earlier this year, Flipkart announced that it would open a state-of-the-art logistics park in the southern part of the country spread across a vast area of 4.5 million square feet. But the company isn't going to stop at that, as it is now looking to invest nearly $100 million in the eastern part of India to open another logistics park.

A shrewd strategy that should pay rich dividends

For Walmart, mom-and-pop stores are going to play a critical role in driving the company's growth in India. The company is helping such stores upgrade their infrastructure by giving them hardware and software support to digitize their operations. So, Walmart is working toward making these mom-and-pop stores its digital storefront as well as last-mile delivery centers.

The company is complementing this strategy by building new fulfillment centers and logistics locations to ensure fast and efficient service. In all, Walmart's latest $500 million bet in India looks like a winner, as it will not only help it take advantage of the country's e-commerce growth, but also get it into India's vast offline retail market.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.