Massmart outsources again
• No jobs will be lost as head office accounting and administrative staff transfer to Genpact
Massmart, owner of Builders Warehouse and Game, is outsourcing its supplier payment services to Genpact, a global financial services firm, as the unprofitable retailer enacts a turnaround strategy. This is the second time Massmart has outsourced functions. It hired an Indian company that works with Walmart to manage its software and information technology.
Massmart, owner of Builders Warehouse and Game, is outsourcing its supplier payment services to Genpact, a global financial services firm, as the unprofitable retailer enacts a turnaround strategy.
The company, owned by the world’s largest grocer, Walmart, announced a turnaround plan in 2020, which included closing tech chain DionWired and streamlining its four divisions into two.
This is the second time Massmart, which lost R1.1bn in its 2020 first-half to June, has outsourced functions after it hired an Indian company that works with Walmart to manage its software and information technology (IT).
This deal is, however, local and with the SA branch of Genpact, while Walmart stores in the US, Canada and Latin America also use Genpact services.
Massmart’s move is part of a strategy to build a more agile, customer-centric business that is supported by centres of excellence, said Brian Leroni, the retailer’s senior vice-president for group corporate affairs.
Massmart has not disclosed the amount to be saved as a result of the move.
The turnaround plans are not yet seen in the financial results, but CEO Mitchell Slape said in a statement he was “proud of the pace at which we are executing against our turnaround plan”.
The turnaround strategy seeks to streamline the separate administrative functions of tax, human resources, buying and administration each done by Makro, Game, Builders and Masscash into two units to stop duplication.
In September, the retailer conducted a study about the feasibility of partnering with Genpact. Accounting and administrative staff based at the head office will be transferred to Genpact and no jobs will be lost, Leroni said.
Slape said the change would
be positive for staff career development. Genpact will set up financial processing centres in Johannesburg and Durban as part of the deal.
“Retail companies need fast, agile operations to respond quickly to ever-changing consumer spending and shopping habits, especially now as they face continued business challenges from the Covid-19 pandemic,” said Genpact CEO Tiger Tyagarajan. Genpact would take advantage of digital technology and analytics to work differently, he said.
GLOBAL BEST PRACTICE
Gryphon analyst Casparus Treurnicht said Slape was taking advantage of global best practice instead of being constrained by the SA way of doing things.
“He is outsourcing work ... at a reduced cost and with greater effectiveness.”
Treurnicht said the outsourcing done in India for management of its IT systems was “exactly what is going to make him a better manager than his predecessors. He’s got experience in these areas globally; he knows what works where.”
The Massmart turnaround may have been knocked off course by the Covid-19 pandemic, which led to government-ordered store closures and restrictions on alcohol sales, and the destruction of billions of rand in sales across the industry.
Massmart on Thursday released a dire trading update for the year to December 27 showing an almost 8% drop from 2019 when it had a R1bn loss.
Its fourth-quarter decrease of 4.1% was an improvement from a third-quarter decline of 7.2%, which included a six-week alcohol ban.
It suggests improvement during its peak trading period, including Christmas and Black Friday, was in part only due to the liquor sales ban.
The low figures are in line with weaker-than-expected November retail sales in SA that declined year on year by 4%, a worse drop than most economists had predicted.
Sasfin analyst Alec Abraham said given that Massmart’s sales growth appeared to lag the official retail sales, “I suspect that they also lost market share”.
Massmart, which heavily promotes Black Friday at Game, said it had weaker sales for the day that was only partially mitigated by running specials for the entire month of November.
Lower sales on what is usually a retailer’s busiest annual shopping day mirrors reports from clothing retailer TFG, owner of Foschini. Its Black Friday sales dropped by almost 34% as consumers shunned crowds to avoid contracting the coronavirus.
However, Massmart through its subsidiary Builders Warehouse - could report a stronger sales performance in its home improvement and do-ityourself categories. Treurnicht said retail sales would only get worse due to current lockdown restrictions, rising unemployment and the end of government relief schemes for people and businesses affected by Covid-19.