Amazon may want a stake in Reliance Retail. Here’s why

Amazon may want a stake in Reliance Retail. Here’s why

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Jeff Bezos’ Amazon (AMZN) is in talks to invest in Reliance Retail, India’s biggest retailer owned by billionaire Mukesh Ambani, the Economic Times newspaper and Reuters reported late last week. The American giant could be looking to buy up to 26% of the company, sources told the two publications.

“We do not comment on media speculation and rumors. Our company evaluates various opportunities on an ongoing basis,” a Reliance spokesperson told CNN Business. “We have made and will continue to make necessary disclosures in compliance with our obligations,” the spokesperson added.

A spokesperson for Amazon in India declined to comment.

Reliance Retail has nearly 11,000 stores across India and sells everything from smartphones to groceries. A partnership would give Amazon a stronger brick-and-mortar presence in a country where it has committed more than $5 billion to growing its business.

Amazon is in a fierce fight with Flipkart — owned by arch rival Walmart (WMT) — for India’s online retail market, which is projected to be worth $200 billion by 2027. The broader retail market is already estimated to be worth more than $670 billion.
Both groups account for just over 30% of Indian e-commerce, according to recent estimates by research firm Forrester, although Flipkart has a narrow lead.

“For Amazon, what they’re looking for is access to offline infrastructure, which includes a supply chain and offline stores,” Forrester analyst Satish Meena told CNN Business. “Without having an offline presence, it’s going to be difficult for Amazon to capture a bigger market,” he added.

The Seattle-based company has been trying to grow its physical presence in India. It bought a small stake in department store chain Shoppers Stop in 2017 and invested in grocery chain More last year. A deal with Reliance would give it access to thousands of stores across the country, particularly in areas where internet access is patchy. Reliance has outlets in more than 6,700 cities and smaller towns.
A deal with Ambani’s Reliance could bring additional advantages. The Indian company owns one of the country’s biggest mobile networks, Reliance Jio, which has more than 300 million users. It’s helping to bring millions of Indians online through cheap cellular data. While Amazon already has a strong online presence, access to the Jio network could mean getting in front of the vast majority of Indians coming online for the first time.

Ambani has already declared an intention to combine his digital and retail clout, announcing plans for an e-commerce platform of his own in a speech in January. Partnering with Amazon would give those plans a major boost.

“This deal will provide Reliance Retail with ready access to an established e-commerce platform,” said Kiran Pedada, assistant professor of marketing at the Indian School of Business. “Reliance will get access to Amazon’s technology and its global knowledge and experience,” Pedada added.

Amazon has been racing to dominate the Indian market, and reportedly even tried to swoop in and buy Flipkart last year before losing out to Walmart.
Both companies have been hit by new Indian regulations on e-commerce that prevent them from undercutting competitors with big discounts and impose restrictions on their investments in the country.
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Having one of India’s biggest homegrown companies and the country’s wealthiest man in its corner could help Amazon more effectively lobby the Indian government against regulations that hurt its business.

“An added bonus coming into this is the policy influence Reliance brings into the picture,” said Meena of Forrester.

But Amazon’s main priority will likely be blowing past its biggest rival in India.

“If [a deal with Reliance] goes ahead, it’s going to be very difficult for Walmart and Flipkart,” Meena added.

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