Massmart warns of sales squeeze

• Supply chain disruptions and cost increases in addition to the July 2021 civil unrest have weighed on the owner of Game

Shares of retailer Massmart, the owner of Game, Builders Warehouse and Makro, fell as much as 13% on Thursday morning after it warned of weaker sales and growing supply chain costs. It said it is battling the fallout of July 2021’s civil unrest and signs that economic conditions are eroding customers’ disposable income.

Shares of retailer Massmart, the owner of Game, Builders Warehouse and Makro, fell as much as 13% on Thursday morning after it warned of weaker sales and growing supply-chain costs.

In an update before its annual general meeting on Thursday, the group reported a decline in sales, saying it was battling the fallout of July 2021’s civil unrest and signs that economic conditions are eroding customers’ disposable income.

Shipping rates, which have increased tenfold during the pandemic amid global supply chain disruptions, have made the cost of importing goods such as electronics, sold by Game, more expensive.

Total group sales fell 0.2% to R30.4bn in the 19 weeks to May 8, Massmart said in a trading update, with total sales at Game falling 3.7%, as consumers shift their spending in favour of nondiscretionary items.

By the JSE’s close Massmart’s share price had cut some of its losses, closing 6.89% lower at R37.59, in its worst one-day performance since early March, and bringing its loss in the year to date to 38%. Over the same period the JSE’s retailers index has lost just more than 1%.

The Walmart-controlled retailer, which has suffered three years of losses of more than R1bn each, has been undergoing a tough turnaround plan under CEO Mitchell Slape, an insider from the US retail giant.

In the past two years, four retail units were merged into two to benefit from bulk-buying discounts, and IT support and financial administration were outsourced amid greater investment in e-commerce.

Tech chain store Dion Wired was closed down and lossmaking Cambridge and Rhino discount grocers were sold to Shoprite, though this deal is awaiting approval from the competition authorities.

The results show a varied performance among brands, with Makro doing well while Game continues to struggle.

Bulk seller Makro’s samestore sales, excluding those affected by the riots, were up 9.7%. Many Makro buyers are from the informal sector such as tavern owners and township restaurants and shops that purchase bulk liquor and food.

Sales by Builders, the group’s star performer through the Covid-19 pandemic as consumers upgraded homes, fell 3.9%, in line with all listed hardware retailers, as the homeimprovement boom came to an end soon after lockdown restrictions began to ease.

However, Massmart said, “Builders’ sales outpaced the industrywide sales reported in the hardware, paint and glass sector as measured by the latest Stats SA data, suggesting Builders is gaining market share.”

Game, Massmart’s consistently loss-making division, saw sales in SA stores, excluding the 15 branches it has up for sale, increase 0.7%. Overall sales, however, declined almost 4%, with no end in sight for weak results, as cash-strapped consumers have less money to spend on discretionary merchandise such as home gym equipment and appliances.

Sales from continued operations, which excludes Cambridge, Rhino and Massfresh, amounted to R27.9bn, an increase of 1.4%, Massmart said on Thursday, while they were also 1.8% higher than the same period in 2019.

In its discontinued operations, Cambridge was under particular pressure, with sales falling 18.6% to R2.2bn. This business has been directly affected by the civil unrest that took place in parts of KwaZulu-Natal and Gauteng in July 2021, as affected stores had not reintroduced all product categories.

MAKRO IS DOING WELL ... MANY BUYERS ARE FROM THE INFORMAL SECTOR SUCH AS TAVERN OWNERS AND TOWNSHIP SHOPS

CASH-STRAPPED CONSUMERS HAVE LESS MONEY TO SPEND ON DISCRETIONARY MERCHANDISE SUCH AS GYM EQUIPMENT AND APPLIANCES

This has been worsened by customers in this segment of the market being mostly affected by the pressures of increased unemployment and lower disposable income, the group said.

Massmart reported it has seen higher product and supply chain costs in the year to date and weighted average sales inflation across the business is about 3.6%, primarily in the food and do-it-yourself categories.