Walmart rides to Massmart’s rescue
Group gets R4bn loan and the help of a supply-chain expert
● Mitchell Slape, the American brought in by Walmart to turn around Massmart, has become accustomed to being asked at every turn if the US retail giant is still committed to SA, or planning to throw in the towel.
“I really look forward to the day when that’s not a question any more,” said Slape in an interview this week.
Walmart paid more than $2.5bn (about R18bn at the time) for a 51% interest in Massmart almost a decade ago, but since then the South African company has had years of poor performance and with it much media speculation about whether the Arkansasbased group may want to end its investment.
Slape, who has more than 25 years’ experience with Walmart, was brought in in September last year to turn around Massmart. If the task ahead wasn’t difficult enough, the Covid-19 pandemic and lockdown, which wreaked havoc in the South African economy, also hit Massmart hard.
The group’s latest results show a R1.2bn first-half loss. And just as it started seeing a recovery in sales in June and July, the second alcohol prohibition by the government came into effect.
Slape estimates Massmart “lost about R550m in sales during the time-frame” of the second ban. But it appears Walmart plans to throw everything — including the kitchen sink — at making its investment in SA work.
Slape said there are many examples of Walmart’s support and commitment to Massmart and that the JSE-listed owner of brands such as Makro, Builders Warehouse and Game continues to “leverage it”.
For example, in June Walmart provided a R4bn loan to Massmart to help it weather the economic fallout of the pandemic and the resultant initial strict lockdown regulations that closed large parts of its business.
“In the heart of our challenges in level 5, in conversation with Walmart and looking for options to ensure that we had more than enough financial headroom, Walmart stepped up and put in place a R4bn loan for us to draw on in the event that it was required,” he said.
Top expertise from Walmart has also been brought in to bolster the team in SA.
At Thursday’s financial results presentation for the 26 weeks ended June 28, Slape announced that Walmart insider Martin Halle, an Argentinian with more than two decades’ experience, was being brought in as new vice-president of Massmart’s supply chain.
This will be the second Walmart executive to be brought on board this year.
“He [Halle] is from Argentina originally. He’s a guy I worked with almost 25 years ago in Argentina and he has made the rounds through virtually every area of supply chain for Walmart, including both in the US and overseas.
“What I am excited about with Martin, he’s got a vision of what we are trying to accomplish in building an integrated supply chain that is very clear and aligned with where we need to take our business.
“Frankly speaking, we’ve looked around for local expertise but to really get somebody that understands how to drive a Walmart programme and help us to get to everyday low cost and everyday low prices, I really wanted a Walmart guy, so I’m really excited about him.”
Slape said Halle is in the process of having his visa processed and it was hoped he would begin no later than the beginning of 2021.
“In the interim he is going to advise the team from a distance and help them out.”
Earlier in January, Massmart brought in American Jason Charlesworth, a member of the Walmart international strategy team, to help it with strategy.
After Slape’s appointment, the entire Massmart executive team was flown to Walmart’s Bentonville, Arkansas, headquarters, where “they [Walmart] laid out for us everything they were working on and we chose what were the things that we wanted to start pulling into our business”.
“Our efforts around enhanced supplier negotiations and leveraging data have been driven off a Walmart programme and they are helping us with that.
“The cost programme where we are focused on cost reduction is fundamentally a Walmart programme and they are assisting in that effort as well.”
According to Slape, the benefits are already being seen.
“We’ve got our cost growth down in a very challenging environment to 1.9% this year versus last year at the same time, where we were growing expenses at 11.9%,” said Slape.
He said there are also signs that the group’s interventions at Game, which has struggled for some years as competitors disrupted its business, are beginning to yield results.
“If you look at the first half, the gross profit margin in Game is up 220 basis points. Expenses declined year on year by 1%. We have a lot of core fundamental work to do at Game.
“I like the progress we have made so far but we have a long way to go and it’s going to take us a little time, but I am still a believer that we can get Game to profitability and then get it to a really healthy place.”
Casparus Treurnicht, a portfolio manager for the Gryphon All Share Tracker Fund, said the appointment of Slape as CEO and the R4bn capital injection from Walmart were all indications that “Massmart and Walmart will be taking this road together further”.
As far as Game was concerned, Treurnicht said there were a lot of “unprofitable stores out there and also a lot of stores that are too big”.
“They need to get those efficiencies right, to get the sales per square metres right. And in this environment you can’t roll out more stores and more stores while existing stores are unprofitable.
“I initially thought it would probably just be a good idea to close down Game entirely and just go with a brand like Makro, which I think is doing outstandingly well. People understand it and they know what they are going to get there. It will be interesting to see what they do with Game.”