Amazon reportedly buying a 10% stake in India’s Future Retail

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Amazon is moving towards closing a deal with India’s Future Retail Ltd.  Reports indicate that the U.S. retail giant is buying a 10% stake of the company. 

Future Retail is a retail company based in Mumbai that sells a range of consumer and household products. As one of the leading retailers in India, it has about 1,021 stores in 321 cities around the country.  The company is known to focus on multi-brand retail trade with an estimated worth of around $2.89 billion.

There are various operating companies under Future Retail. These retail formats are mostly undervalued and home businesses such as Big Bazaar, Food Bazaar, Food Hall, Easyday, and FBB. These also include over 210 supermarkets and 20 compact hypermarkets around India.  

As for Future Retail’s home business format, it includes Home Town and eZone, which specializes in home improvement and consumer durable and electronic chains respectively.  

Amazon’s move to buy a 10% stake in Future Retail is seen as a response to India’s growing penchant for offline shopping. Future Retail’s physical stores have more than 500 million walk-in customers every year. According to reports, Future Retail is looking at a $281 million valuation.  

Talks between Amazon and Future Retail were first reported in May 2018.  News about their deal was also brought up in December 2018. However, the discussion between the parties was halted after the Indian government implemented tighter FDI rules against e-commerce marketplaces.

According to the new regulations set by the Indian government, online marketplaces that have foreign investments are not allowed to sell the products of the companies in which they have stakes. There is also a restriction on exclusive marketing arrangements.  

If the deal between Amazon and Future Retail is closed, it will expand the former’s presence in the Indian market. It is also seen as the first step in a full takeover in the future.

The Indian media is saying that both companies have considered an option that would allow Amazon to buy Future Retail out in around eight to 10 years. This agreement is, of course, subject to the laws of India.  

Amazon’s move to acquire shares in Indian companies is seen as a way to take advantage of India’s brick-and-mortar market. Considered as the world’s largest online retailer, Amazon has been slowly getting into working with companies in India that have physical stores around the country. 

With the Future Retail deal, Amazon would be able to build its presence in the Indian market further. The agreement is also the third investment in the Indian brick-and-mortar retail sector by Amazon, in addition to its presence in the country’s online marketplace.

Future Retail is also looking at gaining benefits if the deal with Amazon pushes through. It would be able to acquire funding, as well as the support that would strengthen its online presence. 

This deal also comes a year after Walmart acquired a majority stake in another Indian e-commerce company, Flipkart, another leading player in the retail e-commerce industry in India. 

In 2017, Amazon was able to buy a 5% stake from Shoppers Stop Ltd.  The reported value was said to be around $25.3 million. The company owns a Department Store chain in India that has approximately 83 stores across 38 cities in the country. It also runs bookstore chain, Crossword, which has over 80 stores across India. 

Shoppers Stop operates a premium home furnishing’s home concept store called HomeStop that has a hold in the beauty business in India. It carries leading international brands like Estee Lauder, Clinique, M.A.C, and Bobbi Brown.  

In September 2018, Amazon also bought a stake in a supermarket chain, More. The chain operates over 540 stores in India. This deal with More would see the expansion of Amazon’s grocery services, including Prime Now to more cities in India in the future.  It would also be a direct competition with Walmart’s Flipkart. 

In addition to the talks with Future Retail, Amazon is considering the idea of buying a stake in Reliance Industries Ltd. Amazon is looking at acquiring a stake in the retail unit of what is considered to be India’s biggest brick and mortar retailer.   

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