NEW DELHI—The famously frugal and focused Walmart Inc. WMT 1.51%is betting $15 billion on a much different kind of company: a sprawling Indian e-commerce startup that has burned through mountains of cash to try to conquer the country’s online shopping market.
The deal for a roughly 75% stake in Flipkart Group is set to be announced as early as this week.
If the union works, it could provide India’s leading online seller needed funds and traditional retailing expertise, while Walmart would be well-positioned for e-commerce in the world’s second-most-populous nation.
“I would not have bet on a deal converging between Walmart and Flipkart, primarily because of the culture difference,” said Kashyap Deorah, a veteran internet entrepreneur and author of “The Golden Tap,” a 2015 book detailing the history of Indian tech startups.
“Walmart is an extensively positive margin driven culture, and Flipkart has consistently been a gross margin negative business,” he said. The deal shows “Walmart considers India as a long-term strategic market,” he said.
In the Cart
Online spending in India lags behind other countries but is projected to grow rapidly.
Average e-commerce spending per shopper, 2017
U.K.
$2,062
U.S.
$1,819
$1,014
Japan
Russia
$346
India
$113
Philippines
$47
$833
World-wide
Digital transactions in India, in billions of dollars
$20
2017
E-commerce
$45
2020
$13
Online travel
and hotel
$20
$15
Online financial
services
$35
Note: Figures for 2020 are upper ends of forecasts.
Sources: We Are Social (spending); BCG/Google (transactions)
Venture capitalists have long assumed India’s internet economy will soon take off like China’s, and they have pumped money into Flipkart. The Bangalore company has used the funding in part to offer deep discounts to shoppers, subsidize shipping and pay for infrastructure, analysts say.
Sachin Bansal and Binny Bansal, who share the same last name but are unrelated, founded Flipkart in 2007, having both worked earlier at Amazon Web Services in India.
Flipkart, like Amazon, began by selling books. It rapidly expanded its offerings over the subsequent decade, tailoring itself to the local market with services such as allowing customers who lack credit cards to pay for goods when they are delivered to their doorsteps.
The company now says it has more than 100 million customers and sells everything from smartphones and selfie sticks to silver jewelry and spice racks. But its growth has come at a cost.
Last year it raised $1.4 billion from Microsoft Corp. , eBay Inc. and China’s Tencent Holdings Ltd. in an investment that valued the firm at $11.6 billion, down from the $15 billion valuation it received during fundraising in 2015.
That move came as Flipkart has seen its position challenged by an insurgent Amazon.com Inc.
The Seattle retailer launched in India in 2013, and founder Jeff Bezos has pledged to spend $5 billion to win the market. It now has about 31% of India’s online market by sales, compared with Flipkart’s 40%, according to research firm Forrester.
Flipkart posted a loss of $1.3 billion on revenues of $2.9 billion in the year ended March 31, 2017, according to the latest available corporate filings. That was steeper than the $781 million it lost on revenue of $2.3 billion in the year ended March 31, 2016.
Blocked by tight regulations from selling products directly to consumers, Walmart opened its first wholesale outlets in India in 2009 amid hopes that it would eventually be allowed to open consumer-facing stores. Instead, the Bentonville, Ark., behemoth has opened 21 Best Price wholesale stores, with plans to open 50 more.
Online retail in India was worth about $20 billion last year but is likely to rise to $35 billion by 2019, according to Forrester, as more consumers get online and start shopping. China had $935 billion in online sales last year, and the U.S. $459 billion.
“I believe Walmart has made a very smart move although they have paid quite a lot,” said Kishore Biyani, founder and Group Chief Executive of India’s Future Group, India’s largest retailer by sales.
Walmart has been investing heavily to grow online in the U.S., where it earns most of its sales, and it held talks with Indian e-commerce startups that didn’t lead to an investment. In India, Walmart “has struggled because of regulation and the market not being ready,” but “They don’t want to become a Xerox or a Nokia so they cannot ignore 17% of the world’s population,” he said.
Neither Flipkart’s founders nor a company spokeswoman responded to requests for comment on the deal or how it might affect Flipkart’s operations.
In acquiring Flipkart, Walmart is joining forces with a startup that, like many fast growing firms, has made its share of missteps. Flipkart in 2015 decided to ditch its mobile website, pushing visitors to its app instead. But many users in India on inexpensive smartphones are reluctant to download apps, and later in the year it backtracked and reinstated a mobile site.
Also that year, the company celebrated its eighth anniversary with a lavish, five-hour-long concert for its employees and their families. A Bollywood star took to a stage on a hoverboard, and backup dancers performed in shorts that appeared to be trimmed with sparkling LED lights.
“This was one of the biggest parties Bangalore has ever had,” a Flipkart spokeswoman said at the time. “Others might have had one or two celebrities. We had four.”
In 2016, after Walmart acquired Hoboken, N.J., web retailer Jet.com Inc. for $3.3 billion, the Arkansas firm outlawed drinking in the startup’s office, but Thursday night happy hours on the premises were eventually reinstated.
Flipkart has also seen upheaval in its executive ranks. Last year Kalyan Krishnamurthy, who joined Flipkart in 2016 from Tiger Global Management LLC, a Flipkart investor, unseated Binny Bansal as chief executive. Binny Bansal himself in 2016 took over as chief executive from Sachin Bansal.
Devita Saraf, founder and chief executive officer of Mumbai’s Vu Televisions, said her company has sold about 250,000 televisions through Flipkart. Ms. Saraf said Flipkart’s founders have worked hard to make brands available to consumers, frequently interacting with her to make product tweaks that would appeal to local consumers.
“They are very aggressive and numbers driven,” she said, with a “flexible, entrepreneurial energy. They are constantly working on acquiring new customers.”
Walmart “may know retail but may not know India,” Ms. Saraf said. “India is a complicated market. You have to have the right partners to understand the customer.”
—Saurabh Chaturvedi in Singapore contributed to this article.
Write to Newley Purnell at newley.purnell @wsj.com, Eric Bellman at eric.bellman@wsj.com and Corinne Abrams at corinne.abrams@wsj.com
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