Massmart reveals massive store expansion plans for Makro and Builder’s Warehouse

Retailer Massmart, the owner of Makro and Game in South Africa, says it aims to grow its store footprint over the next five years to generate additional sales. It follows its latest financial performance showing extended losses over the past year.

On Monday (7 March), the group reported a 65% decline in headline earnings per share for the 52-weeks ending in December 2021, to a loss of 705.5 cents per share, while the group reported a loss for the year of R2.2 billion, from R1.75 billion before.

Massmart said that total group sales for the 52-weeks ended 26 December 2021 of R84.9 billion represented a 1.9% decrease compared to the same period in 2020, while comparable-store sales grew by 1.7% over the same period. The group again decided against a dividend declaration for the period.

It said that it generated a trading profit of R195.4 million, despite the severe impact of civil unrest. “This was achieved through a partial offset of the civil unrest losses by insurance proceeds as well as by delivering a 1.2% sustainable decrease in expenses.”

Massmart said that its performance was impacted by two waves of Covid-19 and resultant lockdowns, as well as civil unrest.

“Black November and Festive season trading were also impacted by stock availability, resulting from the destruction of two Distribution Centres (DCs) during the July unrest, including our primary import processing centre, and from supplier stock-outs arising from the unrest in the electronic goods and home appliances supply chain.”

The group said it lost approximately R4.5 billion in sales because of the civil unrest and the Covid-19 prohibition on liquor sales.

Civil unrest in July led to the closure of 43 stores that sustained various levels of damage, resulting in lost sales of R2.7 billion. A 110-day Covid-19 prohibition on liquor trading resulted in R1.8 billion in lost sales. “We estimate the combined lost sales margin associated with these events to be R666.1 million,” it said.

“Reduced stock availability during the Black November and Festive trading season, as the result of the loss of two distribution centres during the unrest, including our primary import processing centre, together with supplier stock-outs arising from unrest disruption in the electronic goods and home appliances supply chains, has not been factored into the aforementioned lost sales estimate.”

Massmart CEO Mitch Slape said: “Our sales performance has been challenged by external events that have significantly impacted our high contribution General Merchandise and Liquor categories. It has not however derailed our turnaround momentum, the positive impact of which is becoming evident in our Continuing Operations performance.”

Future growth

Turnaround initiatives to simplify and focus the business are mostly complete and include; centralising support functions, outsourcing financial transaction processing, resetting the cost base, integrating the supply chain network, merging the wholesale business, exiting non-core businesses & markets and strengthening Game, Massmart said.

Game reported a trading loss before interest and taxation of R1.03 billion, from a prior loss of R532.5 million, while Builders reported a trading profit of R1.18 billion.

“We have intensified the pivot toward growth in our core general merchandise, home improvement and wholesale food & liquor offerings. This includes investment in e-commerce and increased capital allocation to expand and remodel the store footprint of our high return Makro and Builder’s formats,” the group said.

According to Massmart, it is the second-largest retail website traffic generator, in which it said it achieved a 56% increase in e-commerce Gross Merchandise Value (GMV).

“This track record together with our buying scale and national store footprint, supported by a sophisticated Distribution Centre network, presents a clear opportunity to become the Business to Business & Consumer (B2B+C) e-commerce market leader.

The group noted that it has secured access to Walmart’s global e-commerce technology stack and approved a three-year e-commerce investment plan that is heavily weighted towards creating an intuitive mobile-first online shopping experience. “Our objective is to achieve 50% to 65% GMV growth each year for five years.”

During the next five years, Massmart said that untapped market opportunities will result in a 50% increase in the Builder’s store footprint in South Africa, generating potential sales to R2.4 billion, from R1.4 billion before.

Makro will see a 25% increase in its store network, growing potential sales by two billion rand to R7 billion. “Existing stores in both formats will also benefit from focused store remodelling programmes,” it said.

“Our prospects for growth are compelling and are based on a realistic market assessment that plays to our core strengths. We are rapidly deploying financial and people resources, with e-commerce technological assistance from Walmart, to take full advantage of the market opportunities before us,” said Slape.

Altogether, 72% of Massmart’s 2022 Capex budget has been allocated to investment in e-commerce and Builders and Makro new store development and remodelling projects, he said.

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