Four months into the top job at Massmart, Mitchell Slape has followed the footsteps of the world’s largest retailer, Walmart, on how to revive the troubled retailer.
Slape, a Walmart veteran who was brought in from the US on 2 September 2019 to run Massmart, has fired his first bold intervention to cut costs at the troubled retail group that owns Game, Dion Wired, Makro, Builders Warehouse and other brands.
Massmart, which is majority-owned by US-based Walmart, announced on Monday, 13 January that it was in talks with unions and other stakeholders to close 34 stores, which could result in up to 1,440 job losses. This represents about 3% of Massmart’s workforce at the end of Massmart’s June 2019 financial year, as the retailer had 46,500 full-time employees and operated 441 stores in SA and the rest of Africa.
The possible store closures, which are part of Slape’s strategy to review underperforming stores, will target Dion Wired and Massmart’s Masscash division, which houses Jumbo Cash and Carry, Cambridge Foods and others.
One analyst said Slape is starting to show his Walmart hand and embracing the retailer’s philosophy of not pussyfooting around issues by dramatically cutting costs. Underscoring the urgency for Slape to cut costs is that Massmart’s retail associated costs are rising faster than sales – 11.8% vs 5.5% for the first half of 2019.
He is also under pressure to ensure that Walmart’s $2.4-billion investment in Massmart lives up to the former’s expectations. It hasn’t so far. Walmart purchased a 51% interest in Massmart in 2010 at R148 per share, but Massmart’s share price has since fallen by 70%, closing at R51,54 on 13 January 2020 – meaning Walmart’s initial investment has lost about R12-billion in eight years.
Early turnaround plans
The possible store closures might have a big impact on landlords as their shopping malls will have higher vacancies. Landlords will be further squeezed as Massmart is having on-going talks with them to reduce rental rates to further cut operational costs.
Since being at the helm of Massmart, Slape – who has been with Walmart for 25 years in the US, Mexico, India and Japan – has gone on walkabouts in stores every week and holds town hall meetings in the parking lot for head office staff to discuss his turnaround plans. Slape is expected to reveal a detailed turnaround plan to analysts at the end of January 2020.
All eyes are on whether Slape will be the Massmart fixer as his predecessor, Guy Hayward, a former Goldman Sachs banker who has been at the retailer since it listed on the JSE in 2000, was seen by market watchers as being reluctant to take hard decisions. But Hayward’s efforts to turn the Massmart ship around were hobbled by deflation, low consumer confidence and SA’s economic growth that remains in the doldrums.
Problematic Game and Dion Wired
Game and Dion Wired are problematic in the Massmart stable. Both sell hard goods and hi-tech merchandise (selling everything from televisions to washing machines), and have been impacted by weak consumer demand and more competition from online retailers.
Cassie Treurnicht, an analyst on the Gryphon team, said he has been expecting store closures at Dion Wired for a long time. But he is surprised that Slape is launching a programme to cut stores and jobs so early into his CEO stint. “For him to come four months into his job and make the decision is quite dramatic.” He expects Game to be the next to face store closures.
“The store formats at both Dion Wired and Game are wrong. The stores are too big and consumers are not walking into stores. Both brands are operating in a bad economic environment as consumers don’t have money to buy big-ticket items,” said Treurnicht.
About Massmart’s Masscash division, Damon Buss, an equity analyst at Electus Fund Managers, said: “The combination of razor-thin profit margins, volatile input prices (Masscash brands are heavily exposed to commodity type products such as maize meal), and the tough consumer environment (price increases can’t be passed through fully, but any price decreases have to be passed on to protect sales volumes), has resulted in the division swinging from a profit to a substantial loss.” BM
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