Massmart needs to get it together
Nearly four years after US retailer Walmart bought a 51% stake in discount retailer Massmart, the group is struggling to improve the profitability of its local operations and make inroads on the rest of the continent. Recently released results are not convincing of the company’s ability to better its performance, but the company is acutely aware of its shortcomings and is working hard on improving, says CEO Guy Hayward.
Massmart, which released underwhelming interim results for the 26 weeks ended 28 June, has seen its share price decline nearly 20% since the start of the year, underperforming competitors like Shoprite (down 4.3%), Pick n Pay (up 22.5%) and Woolworths (up 29.1%). The Massmart share price is down 45% from its May 2013 peak of R205.04, and the share is now trading at 2010 levels (also see page 32).
At the time of the 2011 deal, which saw the global titan pay R17bn to take a 51% stake in the local retail group, pundits spoke of the “Walmart effect”. CEO Guy Hayward half-jests that the fact that the Walmart magic is not yet apparent should put a stop to criticism that arose when the deal was first struck, when it was claimed that the NYSElisted titan would f lood SA with cheap goods, hurting local industry and jobs. Long-term benefits, he says, will derive by way of critical mass and innovation – from IT to distribution centres – and other critical competitive factors.
In the meantime, the retailer is struggling to keep up with competitors. In the June period, Massmart’s headline earnings dropped 26% to R269.3m, partly due to foreign exchange losses. A similar fall in percentage terms was recorded last year. At R306.6m now, net profits have softened by well over a third since the first half of 2013 despite revenue increasing by 9% to R39bn over the period.
Woolworths, in contrast, posted a 19.4% jump in headline earnings to R3.3bn and a 4.3% rise in net profit to R3.1bn for the year to June. Revenue increased 45.4% to R58.1bn thanks to the inclusion of David Jones, an Australian business t hat t he Cape Town-based retailer splurged R23bn on last year. Its performance was partly buffered by its focus on high LSMs,