Massmart, which suffered a R1.2bn first-half loss, is strengthening its relationship with parent Walmart in a bid to turn around the business and leverage off the world’s largest retailer expertise.
Walmart-owned Massmart, owner of Game, Makro and Builders Warehouse, saw a 9.7% decline in total sales for the 26 weeks ended June 28 2020, after losing R4.6bn in income in the first nine weeks of lockdown.
But it believes its continuing work with Walmart, one of the world’s most valuable companies with a global market cap of more than $350bn will help it become more profitable.
Walmart insider Mitchell Slape took over as CEO of Massmart in September, and took the management team last year to the Walmart offices in Bentonville US and said on Thursday the global retailer has shown “unflinching” support to Massmart.
Walmart paid more than $2.5bn for a 51% stake in Massmart in 2010 but the company has lost more than 80% in value and faces a tough future amid SA’s weakening economy.
Slape said on Thursday Massmart had switched its IT SAP software system support to a centre in India that hires 3,000 people and helps Walmart branches around the world with their computer SAP systems. The Indian centre offered “better service and lower cost” than local support.
“We have been trying to leverage the Walmart world back into Massmart,” said Slape.
One of the major moves to fix loss-making Game, which bled R416.3m in the six months to June 28, was to introduce new SAP software this year as its existing IT system was 40 years old, resulting in poor inventory and stock management
The company is also bringing in another Walmart veteran, Martin Halle, who has worked for Walmart for more than 20 years in Latin America and the US, to head up its supply chain unit.
Massmart plans to integrate its four businesses’ ordering systems as Makro, Builders Warehouse, Game and Masscash sometimes individually order the same products. Under Halle’s leadership it wants to place orders as one unit to negotiate better discounts and reduce costs.
Despite the six month loss, the company believes the fact that it has increased its gross profit margin from 19.%2 to 20.1% despite the pandemic’s challenges and kept expense growth at only 1.9%, is evidence the new management and the turnaround strategy announced in January is working.
Slape said of his plans to fix the business: “It is a multiyear turnaround journey. This is a milestone in progress. We are encouraged by progress and starting to see our interventions are yielding results.”
In the reporting period, it also spent just more than R46m on severance packages for Masscash and Dion Wired employees after the 23 tech stores were shut. It is now finalising the sale of eight of its 11 loss-making Masscash stores.
Massmart has changed its target of R1.5bn cost savings over three years to R1.9bn as it had negotiated lower rentals than planned. Slape would not give figures but called the rental reductions and reduced annual escalations at store and warehouses “sizeable reductions”. Game was the biggest beneficiary of rental cuts.
Asked in a virtual results presentation when it would return Game and Masscash — owner of Jumbo and Cambridge food wholesalers, which lost R314.5m — to profitability, Slape said he could not give a time frame but he was “impatient”. He also said he understood the company could not cost-cut its way to profitability.
Massmart’s online sales have traditionally been weak but they increased from 0.8% of all group sales to about 2% in the reporting period, with 100% growth at Game and 160% at Builders Warehouse.
Slape said if the company could use its large countrywide store footprint, as stores as well as online distribution centres, it could grow the online business. This will help it compete with Naspers-owned Takealot that sells many of the same goods online.