Business Maverick

Business Maverick

Game on. Or perhaps not

Game on. Or perhaps not
Members of the anti-Walmart coalition protest in Pretoria, South Africa on 22 March 2011, during the competition tribunal hearings into US retailer Walmart's acquisition of a controlling share in Massmart. (Photo: Gallo Images / Foto24 / Theana Breugem)

At least the decision by global retailing giant Walmart for the half of Massmart it doesn’t currently own settles one thing; the primacy of nominative determinism. Walmart’s decision to buy into Massmart in 2011 was presumably motivated by weightier considerations other than that they both had “mart” in the name. The irony of course, at least from a naming point of view, is that Massmart had and still has considerably less mass than Wal.

It’s retailing lore now that Massmart was growing hell-for-leather until precisely the time that Walmart decided to invest, at which point the growth engine of local retailing quickly transferred to Shoprite and Woolworths. This is not quite true however; the company continued to grow – in fact 2017 was its best-ever year. It’s just that the growth was sluggish and that after 2017, it started to tail off fast, and then descended into those sad red numbers.

Those red numbers, now quite large, have meant a tough choice for the majority shareholder; stay at the party and dance, or discretely exit stage left. It’s a relief that the emergency management brought in by Massmart have decided to stay the course, and in fact double down on their investment. This was not the decision the company took in Brazil, or the UK, for exmaple.

But presumably the decision was aided and abetted by the fact that nobody really wanted to buy its half share. And the decision was presumably also helped by the fact that the actual amount of dollars Walmart will have to put on the table is kinda puny compared to the cash it generates in the US and internationally. Walmart bought the first half of the company for R16-billion, but this second half, assuming the regulatory authorities agree, will cost the company R6-billion. It’s somewhat like the ubiquitous promotions often held at both stores: HALF PRICE SALE!

What is more, the total price for both halves will end up at around $1.3-billion, which is about a hundredth of Walmart’s annual profit. It reminds me a bit of that great scene in the movie Casino Royale in which James Bond is trying to stay in a crucial poker game but he has lost all his Royal Majesty’s cash. He is offered a fillip by the American at the table, who says to him, “Do we look like we need the money?”

This is the same company, after all, which a few years ago paid $16-billion for a 77% stake in Indian e-commerce company Flipkart, and recently invested another few billion more. That was definitely worth it though, because the company is now valued at around $37-billion. The same cannot be said of Massmart.

All of this tells you a little about how the US company is thinking at the moment, and what it’s thinking about. And that thing is Amazon. It’s funny what complacency does inside a company: Until Amazon really hit its stride, it was derided in the same way Massmart has tended to underrate its online business and those of its competitors. Just to take one example, not long ago if you ordered something from Makro, it would take about a week to arrive.

But having been overtaken by Amazon in the US, Walmart has been jolted into action, and it needs to inject that same fervour into its investments around the world. Interestingly, Massmart is now trying to get the majority of its delivery times down to a few hours for customers fewer than 30 kilometres from their stores.

That will need some investment, and clearly Walmart thinks this is best done outside of the public investment space, and I’m afraid that is very bad news for people who just love shopping and working at Game, assuming those people do in fact exist.

The Game stores, once the anchor of the group, are now the weight holding it down . The company has split its Game stores into two groups, one which is ominously described as “core” stores, which of course means the others are “not core”. That “not core” group is not small; it’s about a third of the total 146 Game stores. But even the core stores lost around R231-million in this last half year.

The delisting of the group also entails the departure of the Mr-fixit brought in by Walmart to deal with the Massmart mess, Mitchell Slape. The American really has seen both sides of the world, having spent quite a lot of time turning the Walmart investment around in Japan before arriving in SA. I’m sure he is full of praise for the inventiveness of South Africans’ shopping habits, which include actually burning down the stores on occasion. Talk about a fire sale!

Anyway, SA probably owes him a huge debt that despite our shopping creativity, he must have been at least partly responsible for the parent doubling down, so bon voyage. The rugby ball now passes to COO Jonathan Molapo, and despite having to face the All Blacks front line, he will now have the small consolation of being mauled in private. It is now Game on. Or not.

Rough day on the markets; they are just not finding a solid bottom.

Good investing,

Tim Cohen

If you have a friend, or an enemy, who might enjoy this newsletter, please do send them this link … you need to sign up, but it takes seconds.



Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted

MavericKids vol 3

How can a child learn to read if they don't have a book?

81% of South African children aged 10 can't read for meaning. You can help by pre-ordering a copy of MavericKids.

For every copy sold we will donate a copy to Gift of The Givers for children in need of reading support.

A South African Hero: You

There’s a 99.8% chance that this isn’t for you. Only 0.2% of our readers have responded to this call for action.

Those 0.2% of our readers are our hidden heroes, who are fuelling our work and impacting the lives of every South African in doing so. They’re the people who contribute to keep Daily Maverick free for all, including you.

The equation is quite simple: the more members we have, the more reporting and investigations we can do, and the greater the impact on the country.

Be part of that 0.2%. Be a Maverick. Be a Maverick Insider.

Support Daily Maverick→
Payment options