Amazon (AMZN) - Get Free Report is reportedly in talks to buy a stake in Reliance, an Indian retail conglomerate, in an effort to deepen its reach in the fast-growing but difficult-to-crack foreign market.
On Thursday, the Economic Times reported that Amazon and Reliance Retail, the retail unit of Reliance Industries Ltd., are exploring a deal that would give Amazon up to a 26% stake in the unit. Reliance Retail operates a large network of grocery stores and electronics chains, and is India's largest retailer by revenue. Shares of Amazon closed 0.46% lower on Thursday and are up 21% so far this year.
The talks kicked off when acquisition talks between Reliance and Alibaba (BABA) - Get Free Report fell through over differences in valuation, according to the report. Amazon declined to comment on the status of its discussions with Reliance, while in a statement to the Economic Times, Reliance said that it "evaluates opportunities on an ongoing basis" and would make financial disclosures as necessary, but did not confirm that talks were happening.
If Amazon were to snap up a stake in Reliance, it would not be the first time it's sought a relationship with a local retail or delivery player. In 2014, it entered into a "strategic partnership" with Future Group, a dominant operator of retail chains in the country. And just days ago, reports emerged that Amazon is in talks to snap up Uber Eats' India business to go after the food delivery market in India, a market that it has largely abandoned in the U.S. Amazon has also introduced a program called Amazon Flex, which enlists local partners to deliver packages in India, and bought a stake last September in Witzig Advisory Services, a Mumbai-based private equity firm that owns a supermarket chain.
Despite those moves, India has proved a tough nut for Amazon to crack. E-commerce is still nascent in the market relative to the U.S., and there are entrenched retail competitors to contend with, including Walmart-owned (WMT) - Get Free Report Flipkart. Amazon has also encountered resistance from the Indian government, which enacted restrictions on foreign-owned e-commerce players earlier this year in an effort to shore up independent local sellers. In order to comply with those regulations, Amazon has had to remove thousands of listings from certain preferred sellers and reduce its commissions, among other changes to its marketplace model in the country.
Driven by rapid GDP growth and favorable demographics, India's e-commerce market is projected to reach $84 billion by 2021 according to Deloitte, with the overall retail market there growing to $1.2 trillion. In May of last year, Citi Research valued Amazon's India business at $16 billion, and it's estimated that Amazon controls roughly 30% of the burgeoning e-commerce market in India.
In the company's second-quarter earnings call with investors, Amazon CFO Brian Olsavsky expressed some optimism that policy conditions in India will improve.
"Our engagement with the Indian government makes us optimistic about partnering and collaborating to seek a stable, predictable policy that allow us to continue investing in our technology and infrastructure, and it also helps us to create jobs and scale local businesses," Olsavsky said. He also said that Amazon has doubled the number of paid Prime members in the country over the last 18 months, though Amazon has not broken out the number of Prime members either in India or internationally.
If Amazon succeeds in navigating the complex terrain in India -- whether by driving its own infrastructure or teaming up with a regional retail giant -- it could mean a sizable foothold in the world's fastest-growing economy and the sixth-largest consumer market overall.
It would also be a shot in the arm for Amazon's international sales growth, which has been tepid compared to Amazon's other lines of business. For the second quarter, it reported $14.9 billion in international sales, representing year-over-year growth of 12%, while North American sales grew 20% to $38.7 billion. In its most recent 10-Q filing, Amazon reported that net sales from its international segment accounted for 26% of its consolidated revenues.
Months ago, Amazon announced it was cutting its losses in another massive market: China. Effective on July 18, Amazon has largely shuttered its Chinese e-commerce marketplace, eliminating goods from local sellers and offering only overseas products, following regulatory pressure and heavy local competition.
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