MASSMART
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MASSMART
Massmart Rejects Retail Demise and Promises
Continued Expansion PRODUCTION: Manelesi Dumasi
South African retail business Massmart is bucking the trend of the global high-street which is seeing big-name stores close all over the world. By investing in its online offering and by always keeping a meticulous control over expenditure, this is a retailer that is showing the rest how to achieve strong results. www.enterprise-africa.net / 3
INDUSTRY FOCUS: RETAIL
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Globally, a new retail environment has emerged as internet shopping has cast a dark cloud over the world’s highstreets – the traditional trading grounds for goods. It’s not just developed or developing economies that have witnessed the boom in digital retail, this is a global phenomenon. In the USA, a number of major traditional retailers are closing stores including RadioShack, Macy’s and Abercrombie & Fitch. In Australia, Gap finally closed its last retail outlet in February. In China (which has seen more store closures than anywhere else), luxury brands including Burberry and Dunhill have hoisted ‘closed’ signs. The UK high-street has lost Toys R Us and electronics seller Maplin resulting in thousands of redundancies. And in Dubai, fashion retailer, Sana announced in July that it would shut up shop after 30 years of trading. South Africa has seen a number of big-name brands come and go. Stuttafords, Nine West, Mango and River Island have all announced complete close downs, and many more - locally and internationally - have suggested that the end is nigh. But are we truly now in the time of the end of the high street? Is this the point in history when people stop travelling to stores to buy goods and services? Will the doom and gloom predictions of the 1980s finally come true?
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Simply put, no. The landscape is certainly changing, and in five years’ time, we could be faced with a completely different retail sphere. But the necessity for locations where people go and acquire things they need will remain. It’s about being savvy, staying up to date, controlling costs, and embracing a new style of shopping where everything is available, there is no waiting in line, and prices are low. Amazon has announced that it is already piloting an Amazon Go store idea in Seattle where customers can walk in, pick up, and walk out – no cash exchange, no que, and no fuss; payment is taken for only the goods collected through smart technology. But while these new ideas are being refined, and the kinks are being ironed out, the high-street still exists, and it exists in a big way. While the need for retail differs from sector to sector and from country to country, there are some that continue to succeed. In South Africa, one retailer that is navigating the situation with positivity is Massmart. The company is a globally competitive regional management group invested in a range of focused wholesale and retail formats. The JSElisted business is owned by American retail giant Wal-Mart and runs nine wholesale and retail chains, and one buying group across 13 sub-Saharan African countries. Massdiscounters,
// WE LOOK FORWARD TO AN IMPROVEMENT IN MANY OF THE ECONOMIC FACTORS THAT HAVE CREATED HEADWINDS, PARTICULARLY FOR DURABLE GOODS RETAILERS // Masswarehouse, Massbuild, and Masscash are the divisions of the group and together make up second-largest distributor of consumer goods in Africa. More than 400 stores and 500 buying group members across its network are all focused on high-volume and lowcost distribution. RESULTS JUSTIFY MODEL In February, Massmart released its annual results for the 53 weeks ended 31 December 2017. The encouraging report showed that retailers with extensive store networks can be very successful. Sales increased by 2.7% to R93.7 billion, trading profit before interest was up 4.2% to R2.7 billion, and headline earnings were up 14% to R1.5 billion. This success was realised even with the backdrop of a very uncertain, unstable and unpredictable political and economic environment. The company cited three factors that hampered growth: very weak consumer confidence that resulted in low consumer demand for durable goods (being the General Merchandise and Home Improvement categories); significant deflation in most major commodities in the wholesale businesses; and the impact of generally weaker African economies and currencies. But CEO Guy Hayward was positive about the results and remains optimistic about the future. “The 2017 consumer
INDUSTRY FOCUS: RETAIL
environment presented a number of challenges for retailers,” he said. “However, we are excited about the political changes we have seen since the ANC conference in December and we look forward to an improvement in many of the economic factors that have created headwinds, particularly for durable goods retailers. The work we have done on enhancing our operational efficiencies, reducing the cost of execution and refining our product mix means we are well positioned to take advantage of a cyclical upturn. Nonetheless, the structural, policy and public sector impediments remain long-term challenges through which our Food & Liquor offerings will provide a defensive positioning. This is an important moment for South Africa in terms of reinvigorating our own social, economic and political progress and we are keen to contribute to this positive passage of growth and renewal.” He highlighted the problems that caused challenges for the business but reminded of the positivity realised in the second half of the year. “Very weak consumer confidence resulted in lower demand for durable goods, significant deflation in most major commodities impacted the wholesale business and we were negatively affected by generally weaker African economies and currencies. “While these headline figures are indicative of the exceedingly difficult consumer environment that persisted in the period, they mask a muchimproved performance in the second half of 2017. In this second half, three of the four Divisions recorded higher comparable sales growths than the second half of 2016 where year-todate product inflation fell from 3.2% (June) to 2.0% (December) over the same period. And adjusting for product inflation shows that all Divisions reported higher real comparable sales in the second half of 2017.” One of the big boosts for the retailer was ‘Black Friday’, an American
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MASSMART
// ONLINE REMAINS A VERY BIG FOCUS FOR US; WE NOW HAVE STRONG AND VISIBLE ONLINE SHOPPING PRESENCES IN GAME, MAKRO, BUILDERS WAREHOUSE AND DIONWIRED // invention where large discounts are offered on the day after the country’s Thanksgiving celebrations. The concept has spread across various international markets, and South Africa caught on in 2014. “Massmart recorded another bumper Black Friday with over R1bn in sales and improved margin management. A useful portion of this success was enabled by our continued strategy to grow our omnichannel offering, resulting in the Group’s aggregate online sales growing by 47% for 2017. This was achieved through our four e-commerce points of presence; Makro, Game, Dion-Wired and Builders Warehouse which are all currently using or migrating to the SAP Hybris platform,” the company stated. “We saw a wonderful response form customers and we saw enormous penetration of online and mobile – Black Friday is with us and it’s enormous,” confirmed Hayward. NOT CLOSING Far from a depressing situation, like many of the other international retailers are facing right now, Massmart remains in an extremely strong position. In fact, while others are closing, Massmart is looking at opening new stores.
In March, the company announced that it would further fuel its pan-African expansion plans by opening 20 new stores outside of South Africa over the next three years. Reports suggest that new stores will open in Kenya, Ghana, Mozambique, Zambia and Swaziland. Massmart is also said to be exploring expansion opportunities in French speaking African countries as it looks to increase its continental footprint. In total, the Massmart group is home to more than 45,000 people across sub-Saharan Africa and this number looks set to grow as the company has set out a target of growing net trading space by 76,823 m2 in the next three years. As well as boasting a fantastic and widespread store network, Massmart has also invested in its online presence – something which many of the failing retailers have ignored. “Online remains a very big focus for us; we now have strong and visible online shopping presences in Game, Makro, Builders Warehouse and DionWired. It has grown exceptionally, around 46% was the total online sales growth for the year ending December 2017. In Makro, for November and December, online represented 4% of total sales for those months so you can
feel it is growing and growing,” said Hayward. Combine Massmart’s store growth, improving sales, positive brand recognition, and strong leadership with the country’s much improved political environment and economic situation, and add in the company’s excellent online push, and your result is very positive outlook for future trading. Where so many retailers have not future proofed themselves and prepared for a new digital age, Massmart has come up with an effective strategy to keep it moving in the right direction. “Overall, I’m quietly confident that we’re going to see a great 2018, maybe starting a little slowly in the first quarter, possibly into the second, but then getting strong beyond that,” said Hayward. So Massmart is proving that there is life in the retail environment yet. The trick now will be managing the inevitable transition to a more digitised environment, but with ongoing investment into digital operations, Massmart is arguably the leader in subSaharan Africa’s mas retailing industry.
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