/ 26 May 2022

Massmart will not be profitable as long as it keeps Game, analysts say

Massmart should ditch Game, say analysts

Walmart-owned retailer Massmart may have disposed of some of its assets to Shoprite, but this will not make a difference to the loss-making group if it does not sell Game, analysts say. 

The Competition Commission has recommended that the Competition Tribunal approve Shoprite’s acquisition of the multiple retail stores operated under Massmart’s Rhino and Cambridge brands for R1.360-billion

The merger involves 56 retail grocery stores and 43 retail liquor stores operated under Massmart’s Rhino and Cambridge brands; 10 wholesale (cash and carry) stores; two wholesale liquor stores; and Massfresh (consisting of a meat processing and packing facility and Fruitspot, a fresh fruit and vegetable processing facility).  

Remaining in Massmart’s stable are Game, Makro, Builders Warehouse, Jumbo and Shield. 

Analyst and trader Simon Brown says that the assets that Massmart sold were loss-making and taking up management time. This means that overall it will be a “lighter” Massmart, but still one with challenges.

One of those is Game. Its total sales for the year ending 26 December 2021 was R15.3bn, 8.7% lower compared with the same period in 2020. 

In its trading update to shareholders for the 19 weeks to 8 May, Massmart reported a 0.2% fall in sales. Sales for the group for the same period were R30.4bn but for Game, total sales decreased by 3.7%.

“Game remains a problem,” Brown said, “[but] management is confident of a turnaround.”  

Brown said the department store concept is outdated and that the last time he visited a Game store it was as if he had travelled back in time to when he was a child in the 1980s.

“If they don’t fix it [Game] soon I suspect they’ll have to close it down,” he said.  

Alex Abraham, a senior equity analyst at Sasfin Wealth, said that Massmart chief executive Mitch Slape has been trying to align the group to be more like Walmart and that was why he has pulled out of the fresh food retail business. But “it is interesting that he hasn’t sold Game”. 

“I am still of the view that Game has lost relevance in the South African market,” Abraham said. 

Walmart is a retail and wholesale store that bought Massmart in 2011. In that time its share price has plummeted by 80%.

The group has faced considerable upheavals, including the loss in sales because of the Covid-19 pandemic and the disposal of tech chain DionWired in 2020. 

Brown said Walmart has not been able to turn Massmart into a profitable business but this has been the theme for all other markets where Walmart has expanded to. 

“They viewed our market as an easy win and a beachhead into the rest of Africa. But we have a highly competitive and efficient retail market locally and Walmart has struggled,” he said. 

Shoprite, the continent’s biggest grocery retailer, has also struggled offshore. In 2020, it left Nigeria after 15 years. It has also closed its stores in Kenya and discontinued operations in Uganda and Madagascar.

In 2019, Walmart decided to send one of its own — Slape — to turn things around at Massmart. 

Both Brown and Abraham said Slape has not been around for long and his tenure has been marred by the pandemic and the riots in July for his performance to be fairly evaluated. 

“Yes, it’s been three years and yes, they [Massmart] are still making losses, but it hasn’t been a normal three years,” Abraham said. 

He said Slape is a Walmart insider who has focused and streamlined the business and certain moves such as disposing of Cambridge and Rhino would not have been made by a South African management team. 

“He has focused the business on what Walmart is good at and what he believes can be taken forward. However, the noise from the riots and of the pandemic and of the floods, has clouded the actual result,” Abraham said. 

Brown agreed: “Three years is short for a turnaround. Richard Brasher at Pick n Pay took eight years to really turn that business around. Also, the pandemic and the riots last year have not helped and the tough local economy does him no favours either.”

Anathi Madubela is an Adamela Trust business reporter at the M&G.