Amazon in early talks to pick up 26% stake in Reliance Retail

Amazon could be looking at establishing an omni-channel setup in India by teaming up with the country's large brick-and-mortar chains.

Atom E-commerce

In yet another effort to take a foothold in the offline retail space in India, Amazon India may be in talks with Reliance Retail for a stake, as per an Economic Times report. There is no official confirmation from either Reliance or Amazon on this report. However, if this does go through it could be a win-win situation for all stakeholders.

The parent Reliance Industries (RIL) has a debt of Rs 2.88 lakh crore. If Amazon makes an investment the funds can be used to bring down this level of debt. If the deal goes through, Reliance Retail could become a seller on Amazon’s Indian ecommerce platform, opening up a readymade online market throughout India within no time.

Amazon will be able to leverage the 10,000-odd retail outlets being operated by Reliance Retail to offer the last mile connectivity to its customers. Amazon will have a new seller on its platform strengthening it. This will be done without diluting the FDI norms. Amazon cannot open retail stores on its own either under the current FDI norms. The US giant has taken an indirect route to the More supermarkets via an advisory firm Witzig Advisory Services.

The reports on these talks between Amazon and Reliance Retail indicate that Amazon is looking at around 20% stake in any entity staying below the 26% threshold limit imposed for ecommerce site owners to be holding in any seller on its platform.

There are contra opinions on this as well from people who claim Reliance does not have much to gain by tying up with Amazon. It cannot be denied that Reliance will definitely benefit if becomes a seller on a platform like Amazon. For one, its portfolio of electronic goods that are now sold through the offline stores will find a large and evolved online customer base and if the back-end operations are handled by Amazon, the entire effort could come at a very low level of investment for an online presence.

Reliance had earlier held discussions with the Chinese giant Alibaba. People in the know say the talks did not succeed due to differences in the valuation. There are reports of the company talking to the other major offline player, the Future Group. There are however no indications of any progress being made.

The fact remains that the portion of online retail in the Indian context is just around 3% now and is expected it will go up to 7% by 2020. Organised retail will also see a doubling of share to 18% in the near future.