Here's why Jeff Bezos may want a stake in Mukesh Ambani's Reliance Retail

• Amazon may buy a 26% stake in Reliance Retail as it looks to expand its offline presence.
• Reliance Retail has 10,644 stores in India and its profits grew by 70% in the last financial year.
• Amazon is also reportedly in talks with Kishore Biyani’s Future Group.

Global e-retail giant Amazon is looking to acquire a 26% stake in Reliance Retail, according to a report by the Economic Times. The two companies are reportedly in initial talks.

While Amazon refused to comment on speculation, Reliance told ET that the company evaluates various opportunities at the same time and would make necessary announcements as is required by SEBI’s rules.

Amazon holds 30% of the e-commerce market in India and is looking to hold on to a larger market share in the country. But that’s not enough because e-commerce still makes for only 3% of the country’s total retail market and Jeff Bezoz does not want to miss out on the money he can make from physical stores in India.

With the recent changes in Indian e-commerce and the draft e-commerce policy not falling in favour with the likes of Amazon, physical retail seems to be the attractive option now. The deep discounting offered by the online retail giants will be off the shelves, which could once again turn the consumer’s attention to physical stores – where Reliance already has a major presence.

Moreover, with the Narendra Modi government seems in no mood to ease its stance on the e-commerce policy and Amazon needs to find other ways of making good the losses. And that’s why it needs to reduce the risk of depending solely on a price-sensitive e-commerce market.

Instead of investing in its own stores, the US-based company is looking to pick a stake in existing retailers. It had already attempted one with Kishore Biyani’s Future Group, which is still in the works.

That leaves one of India’s largest physical retailers, Reliance Retail, owned by Asia’s richest man, Mukesh Ambani.

Why Reliance

Reliance Retail has 10,644 stores across 6,700 cities, with 100 million registered loyalty customers, and saw 150 million footfalls in their stores in the previous year.

For the last financial year, Reliance Retail posted robust pre-tax profits today as it grew by around 70%, to ₹2,049 crores in the first quarter of 2019-20 as compared to ₹1,206 crore last year.

Reliance Retail operates Reliance Fresh, Reliance Smart and Reliance Market stores, while in consumer electronics it has Reliance Digital, Reliance Digital Express Mini stores and Jio stores. In the fashion & lifestyle segment, it has Reliance Trends, Trends Women, Project Eve, Reliance Footprint, Reliance Jewels and AJIO.com.

Earlier this year, Reliance Retail had acquired the iconic British toy making company Hamley’s and in July completed the 100% acquisition of the company for a reported amount of ₹620 crore.

Meanwhile, there are also reports that Reliance Retail is bringing the iconic American brand Tiffany & co to India, as per an ET report. The brand could be housed in the luxury mall that Ambani is planning to open next year in the Jio World Centre in Bandra Kurla Complex in Mumbai.

How Amazon can help Ambani

Reliance Retail has also been evaluating opportunities. It was earlier reportedly in talks with the Chinese e-retail giant Alibaba, but the deal fell through. Reliance, with its bets with Jio, has been piling up debt even while the business grows. The main cash earner for Reliance is still its petrochemical business but with its falling profits it would need help from Jio and Retail.

So, the money from selling stake to Amazon would help Reliance deal with the rising cash burn and clear some of the debt.