Massmart is braced to fulfil its African promise
An exterior view of the flagship store of lingerie brand Victoria’s Secret in Huaihai Road in Shanghai, China, which opened its doors this week WALMART-owned general merchandise retailer Massmart will look to deepen its presence over the next two years in Africa, where it plans to increase trading space by about 26%.
This includes opening 11 new stores on the continent beyond South Africa in the next two years.
Speaking at the group’s results presentation on Thursday, CEO Guy Hayward said Massmart was “pursuing Africa for growth and diversification”, focusing on the 13 countries it is already in and bringing its Game, Builder’s Warehouse and Masscash brands to these territories.
“We are going to trial some smaller stores just to get away from being dependent on the shopping-mall owners,” said Hayward.
“When [stores] are smaller we can get them closer to our customers and possibly at lower costs as well. We believe that categories we sell into the sub-Saharan market will capture about 60% of retail opportunity.”
For the 52 weeks to December 25 2016, sales growth in rands from outside South Africa was 11.2%, while comparable store growth stood at 3.1%, which, when translated to category level, was 9.4% in food and 0.6% in non-food.
Alec Abraham, a senior equity analyst at Sasfin Wealth, said when Walmart bought the stake in Massmart, it appeared to be more upbeat about the prospect of its expansion into Africa, which so far had not materialised. Plans to increase space by 26% would be an improvement, he said, and the approach was better than one that was more aggressive.
“I don’t think retailers like Massmart should take a chance to roll out significantly and quicker,” Abraham said. “The only South African retailer that has gained traction elsewhere in Africa and shows huge upside potential in its African business is Shoprite.”
Massmart’s total sales for the period rose 7.7% to R91.3-billion, with like-for-like store sales growth of 5.4%. Product inflation was 6.7%. Headline earnings increased 15.6% to R1.3-billion.
After results were released Massmart’s share price shot up almost 10%. Peter Takendesa, a portfolio manager at Mergence Investment Managers, said that was because “the reported results were about in line with what the market expected”.
“There is a lot of short-covering [on Thursday], maybe some of the hedge funds, who had expected weaker results, were surprised to see that the margins are improving ahead of what the market expected,” said Takendesa.
A cash dividend of 224.80c per share was declared.
In South Africa, which accounts for more than 90% of Massmart’s sales, the group will continue the roll-out of its food business to improve margins.
The general merchandiser currently offers food categories in 88 of its 141 Game stores, and 75% of Game’s product offering is nonfood.
The trading profit before interest and taxation at Massdiscounters, the division that includes Game, grew 54.8%, the highest rate in the group.
Masswarehouse, Massbuild and Masscash trading margins were up 4.4%, 2.7% and 28.2%, respectively.
Hayward said: “I believe that Game is on an upward trajectory on its profitability. It’s got its expenses under control and is getting its category under control.”
He said that the drive by retailers into food, particularly fresh food, was going to drive sales as the group — along with its competitors — opened high-density stores such as Cambridge and Pick n Pay’s Boxer brand.