Straight-talking Slape picks up the pieces

Straight talkers are rare in business, but Massmart CEO Mitchell Slape isn’t shy to tell it how it is.

It’s been a year in the saddle for Slape after Walmart parachuted him in to save its African investment. It’s been 10 long years for Walmart, which acquired 51% of Massmart at the start of the “lost decade” for a whopping R148 a share. After 10 years of rand depreciation and the Massmart share price on a downward spiral, Walmart is down 91% in dollar terms. With a silo structure and retail formats competing with each other rather than working together, Massmart needed a fresh approach.

The best-laid plans couldn’t have prepared not just for Covid-19, but for a draconian government approach that banned most of Massmart’s product lines. The results for the six months ended June 2020 were predictably awful at face value (sales down 9.7% and a net loss of R1.2bn including a swing into the red even at

trading profit level, with a trading loss of R267m).

But in Slape, Massmart has a CEO who isn’t afraid to make painful decisions; store closures, restructures and lease renegotiations have been features of his plan. He had little control over revenue growth during the lockdown, but expense growth of just 1.9% is a feather in his cap.

His “Road to Recovery” presentation in January was an honest and detailed strategic plan, acknowledging Massmart’s issues and identifying solutions.

Investors took their time to climb back into Massmart. The share price languished around R20 per share for months, presenting a sustained buying opportunity for those willing to bet on the power of Walmart. One such investor is Slape himself, putting in R8m of his own money in a strong show of faith in the company.

Sentiment shifted in midAugust, as the share price began a run that would see it trading around R31 per share at the time of writing. The catalyst may have been confirmation that Walmart is now more committed than ever, with Slape referring to unflinching support from the majority shareholder.

But what is going to drive the recovery — particularly in an environment where consumers are under pressure, durable goods are suffering and online remains a threat?

First, Massmart is transforming into a more cohesive company that will benefit from centres of excellence. From a technology perspective, Massmart is leaning on Walmart’s global infrastructure. Game’s 40-year-old technology system has been replaced by SAP software, which is critical in an industry that requires data-led decision-making.

Second, Massmart’s supply chain rationalisation is already paying off, with gross margin improving by 90 basis points in the interim period. This is likely due to improved supplier volume rebates, as Massmart’s businesses come together to negotiate with suppliers versus having separate negotiations.

Third, the “threat” of online commands more airtime than it is worth. The online market in SA is estimated at R15bnR20bn and Massmart only plays in a subsector of that. Massmart is a R100bn business — strong growth at Takealot is not about to sink it. It also feels silly to assume that Walmart’s involvement won’t drive an improvement in Massmart’s online offer over the next three to five years.

It’s a turnaround story with a clear plan, a strong underpin (Makro and Builders), a clear opportunity (Game), a supportive major shareholder (Walmart) and visible progress in the latest results. Massmart’s share price is on a season-end sale and IM is buying.