South African discounter Massmart has received a R4bn ($230m) loan from its parent company Walmart to help its cash flow during the COVID-19 pandemic. The company estimates it has lost R2.3bn ($132.2m) in alcohol sales alone during just two months, April and May. Could this be the moment for new CEO Mitchell Slape to do something radical?
Massmart, which owns the Game, Makro, Game and Builders Warehouse retail brands, is warning of a half year loss because of lockdown. For the 9 week period from March 30 to May 31, total sales were R4.6bn ($264.5m) lower than the same period last year year. Total sales for the 23 weeks ended June 7 amounted to R34.8bn ($2.01bn), which was 10.3% than in the same period last year. Like for like store sales were 10.5% lower than last year.
In a public statement, the company has said that ““Massmart’s balance sheet remains strong and … the Massmart Group has sufficient cash facilities and resources to meet its obligations.”
The losses impose more pressure on new CEO Mitchell Slape to turn the business around. Before the lockdown, Massmart was lossmaking and those losses were expected to widen when the half year results come out on the 27th August, driven by Massmart’s discounter division.
Among other changes, Trendtype believes Massmart’s international footprint will be trimmed although Massmart has ambitious plans to expand its store footprint in Kenya and Zambia. The company is in 13 countries, adding a considerable layer of cost and complexity for what is still a small number of stores: more than 90% of Massmart’s revenues come from South Africa. There has been no growth in store numbers in Nigeria, Massmart’s flagship market outside southern cone, in almost two years.
Arguably, the crisis caused by the lockdown hands Slape an opportunity to do something radical when he reshapes the business. As a discounter, Massmart has lost its cost leadership position to Shoprite. Its Builders Warehouse business feels dated against incomer Leroy Merlin. It has not embraced online selling in the way that either Pick n Pay or Shoprite have, which has paid dividends for them during lockdown.