As Massmart records another R1bn loss, it still believes it can revive ailing retailer Game, but CEO Mitchell Slape says it will consider closing underperforming stores in the brand.
Walmart, majority owner of Massmart, has sent Slape from the US to rightsize the company that has lost R1bn in the six months to June and more than R1bn in 2020 and 2019.
Investors have called for Slape to shut down loss-making Game and focus on the much better performing Makro and Builders businesses.
But Slape believes he can make Game profitable even as the company admits its core lower to middle-income customers cut back on discretionary spending in the seven weeks from July to mid-August due to SA’s ailing economy. The company has at last said it is evaluating non-performing Game stores.
Massmart has redesigned 68 Game stores, with the rest in SA to be improved by end-November, making products easier to find, improving the layout and appearance. It has seen a 13% increase in basket size in the improved stores. It is also working on improving the products on offer after previously admitting its products at Game did not resonate with customers.
But Slape’s patience with Game is not forever. “I believe that there is reason to be optimistic. There’s an upside to the Game story. But my patience is not unlimited for Game either. It needs to perform. But, I’m confident with what we’re doing that we’re going to be able to get it there.”
Slape said his actions already show he was disciplined in removing loss-making divisions in the business and will use this discipline when evaluating Game’s underperforming stores.
Marked departure
Massmart has sold Cambridge and the Rhino low-income grocery business to Shoprite, contingent on competition authorities’ approval. Last year it closed Dion Wired technology chain, and has already sold 11 Masscash stores. The company has announced that it is pulling out 15 stores in East and West Africa leaving only a few Builders stores in Kenya.
This Africa divestment is a marked departure from Walmart’s strategy, in which the world’s biggest grocer acquired Massmart at R148 a share in 2011 to use the retailer as a base to expand into the continent.
Slape said: “We may well decide that there are a group of [Game] stores that aren’t going to make it. I think one of the things we’ve demonstrated consistently is that we’re disciplined portfolio managers. And I don’t have a number of stores in mind. But I know that we have a disciplined process.”
However, shutting too many stores would rack up hundreds of millions in retrenchment costs. The group’s reorganisation costs in the half-year reached R78m.
The company is in a dire financial position with R9.2bn net debt, excluding lease liabilities and is running at a loss. Its recent decisions, such as pulling out of Africa, selling Cambridge and shutting down Dion Wired will save it an estimated R750m a year.
The group has just conducted a survey of its Game customer base and found more than 40% of those surveyed thought of Game as the place to be a buy a television and almost 40% had Game as their first choice to buy small and large appliances and electronics, suggesting it still has a target market.
More circumspect
CFO Mohammed Abdool-Samad said he hopes Game, which lost just more than R347m, will break even in a year.
But Slape was more circumspect, saying the company would break even if the economy normalised, admitting that restrictions imposed to curb the spread of Covid-19 were causing some of economic distress. About 14% of group sales are from liquor, which is still not permitted for sale from Friday to Sunday.
“I think it is important for the business and for all businesses in SA to be operating in some level of normal environment.”
As Slape works to turn around the retailer, it faces additional losses after R1.3bn in stock was lost in recent riots, in which two warehouses and 43 stores were destroyed.
The retailer has said it could not confirm if insurance would cover every loss, as it is insured for product losses up to R1bn.
Abdool-Samad said the group is dealing with insurers and working to access interim payments as it tries to reopen stores as quickly as possible, with 78% expected to be open by November.
The closure of the 43 stores is set to affect Massmart’s revenue with sales in those stores down R708m in the seven weeks from July to mid-August. One of the two looted warehouses housed imported product lines.
Slape said that new imported stock should arrive in SA in time for Black Friday and the Christmas period, which is peak retailing season.
“I feel comfortable we will be able to get back to where we need to be in the next few months.”
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