As other retail businesses in SA posted a healthy first half but warned of tough times ahead, Massmart has already recorded a near R1bn loss in the six months to end-June, suggesting its turnaround plan to fix Game is not working.
Two years ago CEO Mitchell Slape, who has spent his career at Massmart’s majority owner Walmart, promised to fix the business, merging four units into two, outsourcing administration and IT support and closing Dion Wired.
He also led a process to fix the layout, customer service, software application and product selection at the loss-making Game stores and invest heavily in improving e-commerce websites and logistics.
But Massmart reported that softer general merchandise sales — the group’s second-largest product category by value — put disproportionate pressure on margins, and it is expecting its headline loss to worsen as much as 51% to R974.9m.
Its continuing headline loss, which excludes the Cambridge, Rhino and Massfresh businesses that have been sold to Shoprite pending competition authority approval, could worsen as much as 157.1% to R921.5m.
Since June, the consumer environment has weakened with rising interest rates and record fuel and electricity prices, suggesting that much harder times are to come for Massmart.
Its star performer, Builders, and rivals Cashbuild and Pepkor’s Building Company already reported weaker sales late last year as the Covid-19 home improvement boom ended.
Durable goods
Massmart said in its trading statement consumers are buying fewer durable goods such as microwaves, bicycles and televisions and more food. Game sells dry food such as cereals, snacks, rice and maize.
Gryphon analyst Casparus Treurnicht said “Massmart will only function again when the consumer is firing on all cylinders. General merchandise is where they are losing money big time.”
Referring to recent trading updates from Pick n Pay, Mr Price, Woolworths and Shoprite, Treurnicht said: “People are trading down and cutting expensive goods and rather spending on stuff they need to use every day. Woolies is also losing market share to [cheaper] Shoprite.”
Total group sales were flat at R41.3bn, Massmart said in an update on Tuesday, with liquor sales jumping 21.3% on a comparable basis, while food sales increased by less than product inflation.
Its shares closed 6.42% lower at R34.09 , bringing its year-to-date loss to almost 44%.
Food sales rose 6.4% and internal sales inflation was at 6.8%, while general merchandise sales fell 1.4%.
Massmart announced the R1.36bn sale of its fresh-food assets to Shoprite in August, saying on Tuesday its group net loss could improve as much as 3.5% to R1.05bn.
The group has also previously reported on lost sales from 43 stores damaged during the July 2021 unrest in Gauteng and KwaZulu-Natal, unrest-related supply chain disruptions and the effect of global supply shortages,
The retailer said previously the civil unrest caused R2.5bn in damage, estimating its net loss at R650m as a result of an insurance shortfall. Massmart said on Tuesday it had received R370m in business interruption insurance to date, and was working to conclude the claim.
Treurnicht predicted Game will face even higher competition from Naspers-owned Takealot and from Amazon retail, which is set to open in SA next year, according to US media reports.
Many analysts have called for Game to be shut but Slape told Business Day in June he believed its new focus on low prices, improved product selection and layout meant it would be profitable again.
Update: August 2022
This article has been updated with share price information.
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