Massmart

  • 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.

Massmart