The biggest winner in the future of Indian e-commerce is not Walmart or Amazon

Indian e-commerce's future biggest winner is neither Walmart nor Amazon

According to BusinessDialogue, on May 26, Indian media Inc42 reported that Bernstein analysts predict in their latest report that Reliance Group in India is expected to surpass Flipkart, which is held by Amazon and Walmart, and become the biggest winner in India’s $150 billion e-commerce market. However, the mainstream industry view currently believes that the latter two are more likely to occupy the largest share.

Bernstein analysts believe that in India, the traditional retail business model is either launched offline (Walmart) or online (Amazon). As the market grows rapidly, India needs an integrated model that combines online and offline, entertainment, OTT, games, and has strong distribution capabilities and cost advantages.

Reliance Group is a player with this model, achieving large-scale development by integrating various resources. The group has Reliance Retail ($18 billion GMV), Reliance Jio (355 million users), and services such as JioTV, MyJio, JioSaavn and JioPrime.

The Bernstein report pointed out that compared with the two giants Flipkart and Amazon, Reliance’s four advantages will help it win the first place in India’s e-commerce market. These four advantages are a strong retail network, a comprehensive mobile network, a comprehensive digital ecosystem, and “local advantages” in India’s harsh regulatory environment.

Reliance Retail ecosystem. (Image source: Bernstein)

Reliance’s subsidiary Reliance Retail has already taken a dominant position in India, operating the country’s largest retail chain with over 18,000 stores.

Recently, Reliance has also acquired many retail companies that focus on e-commerce business, such as shoe retailer VRetail and beauty and personal care brand InsightCosmetics. Last year, Reliance acquired a majority stake in leading fashion designers Abu Jani and Sandeep Khosla.

Reliance Retail has also partnered with Meta to develop a small business communication platform through WhatsApp Business. These measures have established a strong moat for Reliance Retail. In the 2023 fiscal year, Reliance Retail’s net profit increased by 30% year-on-year to 91.81 billion rupees, and revenue reached 2.3 trillion rupees, a year-on-year increase of 32%.

In contrast, Flipkart, which heavily relies on the wireless and mobile electronics category, is facing challenges due to the slowdown in smartphone shipments in the country. In addition, the profit margin of smartphones is low, so both Flipkart and Amazon need to develop high-profit categories.

Amazon’s e-commerce business in India is also facing obstacles. Last year, Reliance surpassed Amazon and acquired the stores of Big Bazaar and the business of German wholesaler Metro in India.

Amazon’s recent commitment to invest $12.7 billion in AWS services in India indicates a shift in focus to cloud services in the Indian market. Although Amazon’s cloud business operates at a loss of only $5,000 to $10,000, its e-commerce department in India has a loss of up to $500 million.

In addition, Amazon is losing market share in high-profit categories such as fashion. Although Flipkart claims to occupy 60% of the market share in this field, Amazon only occupies 20%. According to Bernstein, Reliance’s AJio is close behind and has captured more than 15% of the fashion market share.

Recently, Reliance also announced a partnership with Shein to seize a share of the low-cost fashion market in India. Although most of Reliance’s other international brand partners are luxury brands or designer brands, analysts point out that India is still an economy with relatively low per capita income, and low-cost brands have greater opportunities.

Meanwhile, Reliance Retail is expanding its influence in the online beauty and personal care (BPC) sector, launching Tira and increasing competition in the market with emerging BPC players such as Nykaa.

Bernstein values Reliance Retail’s e-commerce business at $36.4 billion, surpassing Flipkart’s adjusted valuation of $33 billion after the spin-off of PhonePe. Valuation for Reliance Retail reaches as high as $110.9 billion.

Indian e-commerce conventions and regulations (Source: Bernstein)

For Amazon and Flipkart, the most difficult obstacle they face in India is the country’s complex regulatory environment. Local laws prohibit these marketplace model enterprises from directly owning, selling, and pricing goods.

In contrast, Reliance’s inventory-led model enables it to tackle these challenges through inventory control, pricing autonomy, and improved customer experience. Bernstein also believes that India’s relatively underdeveloped seller ecosystem hinders the implementation of pure marketplace models.

Editor ✎ Ashley/AMZ123

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