Global retailer Walmart is again coming to the aid of subsidiary Massmart, owner of Game and Builders Warehouse, by paying a third-party provider of financial services for the next two years, with the JSE-listed retailer having to repay the money interest free.
Walmart owns a majority stake in Massmart, which has lost more than R1bn for two consecutive years, as retailer Game struggles to turn a profit. Walmart in 2020 provided Massmart with a rolling R4bn loan as the SA company’s medium term debt became due.
Walmart is now financially supporting Massmart’s transaction with Genpact, a multinational that manages back end office operations for many Global Fortune 500 companies. Massmart hired the global professional services firm in January to do administrative work, including taxation and paying accounts.
The agreement with Genpact, which is expected to save money in the long term, came after Massmart CEO Mitchell Slape merged the four business units — Makro, Game, Builders and Masscash — into two units to stop the duplication of financial processes and multiple orders from the same suppliers.
Massmart did not disclose what would be saved by its agreement with Genpact, but decided on it after a feasibility study last September.
Genpact requires $16.2m (R230m) with the majority owed over two years, the company said in a statement.
Walmart, through its wholly owned Irish subsidiary, Newgrange Platinum Services, will pay the upfront costs to Genpact and charge these in equal interest-free instalments over the eight-year term of the contract to Massmart.
This provides cash flow relief to Massmart, which is not yet turning a profit, of $11.34m over the next two years.
Genpact is hiring Massmart staff to ensure the outsourcing does not lead to job losses.
Walmart has been supporting its SA business by sending in Slape, a Walmart insider, to lead the firm from September and providing two Walmart executives to lead supply chain development and online sales strategy.
Slape is driving Massmart’s strict turnaround plan to return to profitability and is selling the Cambridge and Rhino fresh food businesses and shutting down IT chain Dion Wired.
He has also outsourced IT software support to a centre in India owned by Walmart.
The Walmart purchase of Massmart has not been what it hoped. The world’s largest retailer bought a majority stake in Massmart for R148 a share in 2010, with the share now at R66.95, having plummeted to R18.84 in intraday trading on August 4 2020.
The purchase of Massmart was viewed as a way for Walmart to expand into the rest of Africa, but Massmart is reviewing whether to stay invested in Uganda, Nigeria, Kenya and Ghana, suggesting it may close or sell those operations.
Builders Warehouse had its best year ever in 2020 as consumers invested in their homes and Masscash, owner of Jumbo Cash and Carry wholesalers, also turned a profit. But Game continues to lose money and struggles with low mall traffic.
Massmart also extended payment terms to suppliers by six days to 73 days to improve cash flow.
Slape has previously said Massmart would break even this year. However, it faces a constrained consumer in SA, a devastating third wave and it lost billions in liquor sales at Makro in the three liquor bans. A quarter of all Makro sales are alcohol.
In a recent annual general meeting, Slape said the retailer was on track to meet its goal of slashing R1.8bn in expenses by 2022, and the “cost cuts are showing demonstrable results in financial performance”.
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