Walmart Inc.’s Flipkart unit on Friday agreed to buy a 7.8% stake in Aditya Birla Fashion and Retail Ltd (ABFRL) for Rs 1,500 crore, a move that will help the online retailer consolidate its position in the apparel business with access to brands such as Allen Solly and Van Heusen, as it battles Amazon for dominance in India.

The deal will help Aditya Birla Fashion cut its debt and expand into new apparel categories. The funds will be raised at Rs 205 per share, the company said in a statement.

Flipkart, which also operates India’s largest online fashion marketplace Myntra, will work closely with Aditya Birla Fashion, for sales and distribution of its brands.

The transaction gives Flipkart a significant edge over Amazon, which is trying to challenge the Walmart-owned company’s dominance in online fashion retailing. “The deal provides a lot of leverage to Flipkart and Myntra in terms of offering the right brands, supply chain, etc. The key takeaway, however, is if online play is not integrated into the business model, offline retail is doomed,” said Ankur Bisen, senior vice president, retail and consumer, at management consulting firm Technopak.

In July, Flipkart bought a stake in Arvind Youth Brands, the owner of the Flying Machine brand, for ₹260 crore.

Both Flipkart and Amazon are buying minority stakes in offline multi-brand retailers to strengthen their presence in the brick-and-mortar segment, where foreign investment is restricted to 49%. Amazon and private equity firm Samara Capital acquired supermarket chain More from the Aditya Birla group in 2018. The e-commerce giant also bought stakes in department store chain Shoppers Stop and Future Coupons Pvt. Ltd.

With the latest acquisition, Flipkart and Aditya Birla Fashion might also look at co-creating new youth-focused brands, which will sell both offline and online, a person familiar with the deal-making process said.

“Retail companies need the capital right now. So, from the company’s (Aditya Fashion) point of view, it is more of a financial reason that they are doing the deal, while investors like Walmart are doing it more for strategic reasons,” said Harminder Sahni, founder and MD, Wazir Advisors.

Shares of Aditya Birla Fashion closed 7.5% up at ₹165 on BSE on Friday. India’s retailers have been in a bind as the covid-induced lockdown crushed business at retail stores for months. Formal wear, where Aditya Birla Fashion has a significant presence, has suffered as curbs have prompted consumers to work from home, depressing demand for office wear.

Aditya Birla Fashion draws 6% of its business from sales via e-commerce platforms.

“This will lead to a significant reduction in the company’s debt-equity profile and overall debt,” said Abneesh Roy, senior vice-president, research, Edelweiss Securities. The branded apparel company’s net debt as of 30 June was ₹3,250 crore, the company’s top management said in its first-quarter earnings call.

Through this transaction with ABFRL, Flipkart will work towards making available a wide range of products for fashion-conscious consumers across different retail formats, Kalyan Krishnamurthy, CEO of Flipkart Group, said in the statement.