Does Massmart need overhaul?
FIRST LOSS IN 19 YEARS: IT’S OVERSPACED – ANALYSTS
Massdiscounters, which houses Game and DionWired, may see interim losses increase over four-fold.
Massmart will have to take a long, hard look at its embattled Massdiscounters division to turn the group’s fortunes around, and this should include an “Edcon-like” rationalisation of its Game and DionWired stores.
This is the consensus of analysts, following Massmart’s recent sales and trading update warning of an operating loss of up to R30 million for the six months to June.
Massdiscounters, the largest division, is expected to see its loss increase over four-fold year-onyear, to between R395 million and R425 million.
Retail analyst Syd Vianello says incoming Massmart CEO Mitch Slape (from US parent Walmart) will have his work cut out for him.
“Slape will have no option but to analyse each and every store. Effectively, Massmart and particularly
its Massdiscounters division, will have to go through an ‘Edcon’. Unprofitable stores will have to be closed and poor-performing stores either downscaled or shut down. He will have to look seriously at rationalising the business and this will mean job losses.”
Arqaam Capital equity research analyst Daniel Dias says Massmart’s biggest issue is Massdiscounters. “A rationalisation of stores will have to be done as many Game stores are ‘over spaced’ by 10-15%.
“Massmart is also facing strong competition from online retailers like Takealot, which has done some heavy discounting. A lot of tech, electronics and appliance sales now take place online.”
While Massmart has embraced an online strategy, Sasfin Wealth equity analyst Alec Abraham believes it’s “extremely poorly executed”.
Food strategy not paying off
Dias says Massmart’s food strategy needs a thorough relook.
“It does not make sense that each division (Massdiscounters, Masswarehouse, Massbuild and Masscash) works autonomously when management can benefit from a cross-pollination of ideas. Massmart’s drive into food, particularly through its Game stores, has not worked out as it would have liked. It has faced tough competition from Shoprite and Pick n Pay.”
Vianello agrees. “It was a mistake to [go into fresh food retail] within Game, because the general merchandise side of the business has suffered. The growth of the lower margin food business has disguised the lower contribution of general merchandise.”
Masscash losing money
Masscash, which houses Jumbo Cash & Carry, Rhino Cash & Carry and Cambridge Food, is another problem division, says Vianello. “Masscash is losing money and seems unable to compete with independent retailers in the cash and carry wholesale space. I also never understood why Cambridge Food was put into this division.”
Massmart says Masscash will report an interim trading loss of R180 million to R210 million. Masswarehouse, which houses Makro stores, is still profitable but has also seen a decline in trade.
“There is no doubt structural issues in SA’s economy over the last few years have affected Massmart badly. But it has turned into a perfect storm for the group with increased competition from fellow retailers, the growth in online competition, food deflation and some poorly timed decisions by Massmart’s management,” Dias says.