Massmart suffered another major downturn following its recent trading update for the twenty three weeks to 7th June 2020, due to theCovid-19 pandemic, resulting in a shutdown of most of its operating subsidiaries.
This has resulted in a statement by the company that losses would be at least 50% worse than last year’s headline loss of 364.7c, and has in turn borrowed R4 billion from parent company Walmart.
Walmart invested R16.5bn for a controlling stake in Massmart nearly ten years ago, as it looked to expand its footprint in SA into the burgeoning African market, the potential growth engine of the continent.
The forecast loss of between 547c and 573c, was also a function of the continuing resulting malaise being suffered by Massmart, resulting in the appointment by Walmart of Mitchell Slape, as the new CEO, with a mandate to turn the group around.
Cost cutting was already underway prior to the trading update, as was the merging of a rather complex corporate structure from four business units into two operating entities, as well as downsizing and closure of some businesses (like Dions, Hi-fi Corporation, and the wholesale food division)
The group has a diverse range of operations, including Makro, Game, and Builders Warehouse, which have had different measures of success and failures.
Makro, the large box stores, seller of foods and general merchandise, have been the mainstay of the groups success, as have Builders Warehouse, whilst Game has been a drag on the group, despite various attempts to turn it around, such as the introduction of foods to increase the foot traffic.
· There has been some uptick, with liquor sales and appliances, and building materials now excluded from the lockdown, however much work remains to be done in terms of a major group restructure.
Game in its existing format, needs to change, perhaps to smaller stores, as well as pruning the number of operations, in addition as a changing the shopping experience, which is currently not conducive to customer satisfaction, despite the strength of the brand.
Mitchell Slape might well change the group to reflect the “Walmart Way”. This could result in the sale or closure of Game, as online players are likely to become a major competitor in this market. The Massmart share price has taken a beating since its high of June 2019, having declined by 65%, from R65.00 to the current level of R22.90.