Massmart ‘should rebrand as Walmart’
Group urged to trade on US name in African expansion
US retail giant Walmart will have to start “Walmartising” Massmart if its South African subsidiary is to survive the treacherous African retail landscape, industry analysts say.
Massmart should be capitalising on its parent company’s global brand recognition to draw more consumers and aid its efforts to expand rapidly on the continent, they say.
Massmart has had stagnant growth since it was acquired by Walmart in 2012, and has lost more than 20% of its share value since then.
There is speculation that the US company wants to sell its stake.
Byron Lotter, a portfolio manager at Vestact Asset Management, said growth had been static because Massmart lacked brand recognition.
Massmart had used its Game stores as one of its big African expansion platforms, but “I think that was a mistake . . . no one really understands it or knows it anywhere else but South Africa”, he said.
“They could have converted all the Games into Walmarts and seen how that went, and then converted the Makros and the Builders Warehouses to Walmart Builders . . . They should have used Walmart to expand in a few other countries . . . and even converted all their brands here [in South Africa] into Walmart,” he said.
Massmart owns 20 Game stores in Africa, 12 CBW, Jumbo and Trident stores, and only six Builders Warehouses in its portfolio of African outlets.
However, Marilee McInnis, WHAT’S IN A NAME? A Builders Warehouse in Zambia. An asset manager suggests the name Walmart Builders would be more familiar to potential customers director of international corporate affairs at Walmart, said Walmart “remains committed to our investment in Africa”.
She added: “Our partnership with Massmart is strong, and we are committed to growing with them on the continent.
“Walmart is well positioned to foster development and growth in the region through the investments we will make in stores, in infrastructure, in distribution supply chains, in agriculture, in technology and in creating jobs.”
But the commodity cycle rout has hit African currencies hard, leaving many vulnerable to unstable economic environments. According to the World Bank, growth in sub-Saharan Africa is at its weakest since 2009, coming in at 3% last year, a decline from 4.5% the year before.
The weak rand has forced retailers such as Spar to look for rand hedges in Switzerland and Ireland.
“Unfortunately, investors have choices, and, with the economy always moving, you do need to adapt, and these guys have possibly been a bit slow,” said Lotter.
But Massmart could learn from Shoprite, which had been able to expand into Africa by developing infrastructure and establishing relationships with local distributors, he said.
E-commerce may be the saving grace for Massmart. Its online sales totalled R183-million last year, with visits to DionWired sites up 13%.
In the US, Walmart has identified e-tailing as a key growth node.
According to Euromonitor, online spending in South Africa is estimated to be R6.6-billion a year, with a projected R13.4billion a year by 2020.
Geraldine Mitchley, head of emerging products and innovation at Visa, said that in subSaharan Africa, retailers had an integrated digital strategy whereby “they look at digital engagement with you to anticipate what you need next and where you are and actually get to know you”.
She said: “That’s what we see Walmart do in the States. Whether that’s going to translate into the African markets is still to be seen.
“But when we engage with our customers, that’s definitely the direction that’s to be seen, because of mobile being so prolific.”
Charles Allen, a Londonbased senior analyst for Bloomberg Intelligence, said: “[Although] Walmart did say that they were considering selling some operations . . . it didn’t particularly seem to me that Massmart was at the top of the list.
“If you look at the operations that Walmart has for longerterm growth . . . although they didn’t specifically mention Africa, it’s not difficult to see there’s much more potential in Africa than there is in Japan.
“What you might see as Massmart goes into new countries, it may have to accept that it is going to operate on quite a small scale for a while, while it gets all these other things in place. Then you can start opening stores a bit more rapidly.”
For Lotter, Walmart would be making a mistake if it sold its stake in Massmart now.
“That’s not how it works when you are a long-term investor in a company that’s supposed to have the long term in mind.” Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.sundaytimes.co.za