Massmart, which is in the midst of a turnaround strategy to stem annual losses, has to foot a R650m insurance shortfall after damages caused by the looting, arson and store closures during the civil unrest cost it R2.5bn.
The size of the insurance shortfall is a big blow to a company that has been loss-making since 2019 and has brought in three top Walmart executives to reshape the company.
The retailer, which is headquartered in KwaZulu-Natal and is controlled by Walmart, had two warehouses looted with one of them razed to the ground as well as 43 stores damaged in the July protests.
However, its share price rose by 8.56% on Tuesday as an update showed same-store SA sales at Builders and Makro were up for the 39 weeks to the end of September. This suggests the turnaround under CEO Mitchell Slape may be working as the Walmart veteran closes unprofitable stores and restructures the organisation.
Massmart lost more than R1bn consecutively in 2019 and in 2020. Under Slape it has consolidated four brands — Builders, Makro, Game and Masscash — into two divisions to avoid duplication of staff. It also sold loss-making Cambridge grocery stores to Shoprite and closed all Dion Wired technology stores in 2020.
Gryphon analyst Casparus Treurnicht said the update "confirmed to investors that a recovery is happening". He said the market is also looking past riot-induced losses to focus on operational performance, with like-for-like sales in same stores recovering as it closes underperforming outlets.
Walmart, the world’s largest retailer, has in place a rolling R4bn loan to Massmart and has pledged continued support.
"Massmart remains an important component of the Walmart international portfolio and we will continue to support the team as they work through the impact of the civil unrest earlier this year," it said.
Massmart has redesigned and adjusted the layout of nearly all Game stores and invested in e-commerce partnerships with Uber. And it is buying delivery service provider One Cart to improve online sales.
The statement showed Makro sales were up 10.8% in the nine months to September, reaching R19.9bn.
Builders’ total sales of R10.9bn were 11.8% higher than last year, driven mainly by strong retail demand. But sales to other businesses in the construction industry were muted.
Loss-making Game, badly damaged by looting, continues to drag the company down. Its total sales of R10.9bn were 8.2% lower than the same period last year. But in the months July to September same-store Game sales in SA were up ever so slightly at 0.2%.
Massmart said customers are warming to the redesigned stores at Game, which has had low foot traffic because the larger malls they are located in are not as popular as convenience malls.
Emigration
Massmart is losing senior executive Doug Jones, head of the wholesale division that incorporated Makro and Masscash, who is emigrating to Australia. Clicks CEO Vikesh Ramsunder is also moving Down Under to head a company there.
Analyst at Aeon Investment Management Zaid Paruk said: "It is unfortunate that we are seeing executive leaders emigrating. It is a growing concern within the investment community that scarce skills are being lost, especially in critical areas."
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