Game a major contributor to Massmart’s R1.3bn loss

Game was a major contributor to Walmart-owned Massmart’s R1.3bn loss in 2019, adding to mounting pressure on CEO Mitchell Slape to save the ailing big-box store.

In January, Slape, a Walmart insider of 25 years, along with Game MD Andrew Stein, outlined plans to revive the brand by cutting fresh and frozen food, and music; improve customer service and stock management; and sell more in-demand goods.

Game and DionWired jointly lost R674.6m in the 52 weeks to December 29.

Game has inherent weaknesses such as its huge store sizes resulting in high rent.

It also faces a weak economy in which consumers have cut their spending on durable goods such as furniture, fitness and camping products.

Slape, in a meeting with media last week, said market research showed that the brand was powerful and people thought of Game as the place to buy an appliance.

It still sells about 40% of SA’s appliances, including fridges and washing-machines, and has a good market share in small towns.

Slape said: “People were clamouring for us to make a hard decision on Game and close it down. That would have been far too easy.

“The most challenging thing about building a new brand format is just getting brand recognition ... with consumers. Game has that already. Game has recognition.”

Slape, with the backing of Walmart, arguably the world’s most successful retailer, still faces an uphill battle as Game has a big-box format that is going out of fashion globally and faces fierce online competition; it also has mounting labour and electricity costs.

Massmart’s labour costs rose 8% last year and the group’s expenses grew 10.2%.

It had already noticed a decline in consumers buying fewer big-ticket items, instead buying more food and drinks, which have a lower profit margin. This led to gross margins declining from 19.5% to 18.9%. Food and drink sales rose 5% year on year, but general merchandise spending decreased 1.3%.

The group, including Makro, had a successful Black Friday, but this was offset by poor December holiday season shopping. Some of Massmart’s weak performers have already been addressed by Slape, who wants to close 11 Masscash and all 23 DionWired stores subject to consultations with labour.

Slape, aware of Game’s huge store sizes, said: “Escalations ... are ridiculous. There is nothing that justifies them ... It’s time, I think, for the market to get rational about what is reasonable. As I walk into Game stores it is obvious we have massive out of stock [ranges].In terms of how we position merchandise in the store, you will see a promotion, not priced properly or advertised [correctly.”

Massmart has admitted to inconsistent customer service and a poor online presence.

Not everyone is convinced Game can be saved. Gryphon Asset Management analyst Casparus Treurnicht said that online retailers were often cheaper than Game. “In my opinion, Massmart has a retailer of choice problem.

“If you are going to shop for general merchandise you would like to know that they are offering the most competitive pricing. In this economic environment, I cannot stress how important this point is.”

Massmart’s share price ended 5.26% down at R45, its biggest fall in three days, in line with the broader market.