Walmart’s priorities sideline Massmart
● It has been a tough seven years for Massmart, the general merchandise retailer that owns Game, Dion, Makro and Builders Warehouse stores, as the benefits that Walmart was expected to bring to the company have failed to materialise, with the US giant focusing on bigger and more lucrative markets.
When US-based Walmart, the world’s largest retailer, bought a 51% stake in Massmart in 2011, it sought to grow its presence in Africa and expand its food retailing business.
SA was considered a high-growth market. But amid the continuing retail dogfight between Walmart and its direct competitor Amazon, which are battling it out for the online retail trophy, Massmart is probably its parent company’s least concern.
Massmart is “pretty small in their world”, said Byron Lotter, a portfolio manager at Vestact.
To keep abreast of e-commerce retail trends, Walmart bought Jet.com in August 2016. In 2018 Walmart bought 77% of India’s largest online retailer, Flipkart. The retailer also has joint ventures with China’s Tencent.
“They determined that they will remain a market leader, particularly in grocery and e-commerce, but they want to be a leader in e-commerce overall,” said Charles Allen, global food retail research analyst for Bloomberg Intelligence.
“And so they’ve set out their own marketplace there, trying to match Amazon in many ways, putting a lot of technology into their stores to help with e-commerce distribution.’’
Walmart’s other priorities included revitalising its position in China to ensure it was not left behind in that market, Allen said.
This week, Massmart’s disappointing sales update and trading statement jolted its share price. The shares dropped over 20% on the news. Since Walmart bought the company, Massmart’s share price has fallen almost 35%.
In its trading statement for the 52 weeks ended December 2018, sales grew 2.9% while comparable sales rose 1.2%.
This was despite the busy Black Friday shopping event falling into the reporting period.
The company said that “despite a satisfactory sales performance over the Black Friday period”, sales growth slowed in all divisions apart from massdiscounters, which include Game and DionWired, in both November and December 2018.
Lotter said Walmart was performing better than Massmart because it was located in a less harsh economic environment, with the US economy growing at a rate of 3%, while SA’s economic growth was around 1%. SA also had a high rate of unemployment. “Obviously the Massmart environment is a lot tougher than the Walmart environment.”
Walmart was well established and very competitive, though it did face the challenge of other “online disrupters” despite its significant online retail presence.
Lotter said one of Walmart’s mistakes when it came to Massmart’s strategy was the move to bring fresh produce into Game stores, which had not yielded great results.