Massmart, the operator of Makro and Game Stores, reported on Monday (18 May), that the outbreak of Covid-19 in South Africa – and the resultant lockdown – has severely constrained sales in a trading update for the 19 week period ended 10 May, 2020.
The group was already under pressure prior to lockdown, having announced the closure of hi-tech retailer Dion Wired, and some Masscash stores.
It noted that trading for most the reporting period was restricted to essential goods at its stores including Game, Makro, Builder’s Warehouse, Cambridge Food, Wholesale Cash & Carry, and Jumbo.
Consequently, Game and Makro did not trade in general merchandise, save for those categories falling under the definition of basic and essential goods, it said.
“No alcoholic or tobacco products were sold and our South African Builders stores were not permitted to trade in accordance with the regulations. Likewise, our non-essential product distribution network and our home and regional offices were closed with almost all of our regional and home office associates working remotely.”
Massmart said that the untradeable product categories represent a significant portion of its overall merchandise offering. The contribution of these product categories to sales in the 2019 financial year was as follows: general merchandise (26%), liquor (15%) and home improvement (15%).
Given the high level of contribution of these categories to total sales, April Covid-19 sales were significantly lower than would be the case under normal trading conditions, it said.
Sales under pressure
For the 13-week period ended 29 March 2020, total sales increased by 1.3% over the prior year, with comparable store sales increasing by 0.9% over the same period.
However, the Covid-19 lockdown has significantly impacted normal trading patterns.
Consequently, total sales for the 19 weeks ended 10 May 2020 amounted to R28.2 billion, and were 11.9% lower than the same period last year.
Comparable store sales were 12.1% lower than last year, Massmart said.
“Sales from our South African stores amounted to R25.3 billion, 13.1% lower than last year, with comparable store sales decreasing by 13.2%. Total sales from our ex-South Africa stores amounted to R2.9 billion, 1.3% higher than last year, with comparable stores decreasing by 0.3%.”
Massmart said that the intensified pressure resulting from extended Covid-19 trading restrictions increased the daily focus on liquidity and cash flow management. “Massmart has a strong balance sheet and based on our cash flow forecasts, has sufficient cash facilities and resources to meet its obligations.”
The group said that it negotiated rental reductions and improved, mutually beneficial terms with strategic suppliers.
Massmart said it has steps to optimise the supply of food, basic and essential goods and ensuring the availability of these products in-store, while online platforms are processing and fulfilling customer orders of basic and essential goods.
“All other online orders will be processed for delivery once the appropriate lockdown level allows for this,” it said. President Cyril Ramaphosa has stated that the government is in discussion over a move to level 3 lockdown before the end of May, however, with a caveat that some areas with high rates of infection are likely to remain at level 4.
Looking ahead, Massmart said: “The factors impacting financial performance remain fluid and adds complexity to short term forecasting.”
“We remain concerned with regard to the impact of a prolonged lockdown and limited trading environment on the South African economy and population,” it said.