JOHANNESBURG – Massmart, South Africa’s giant general merchandise retailer, is looking to close 34 loss-making stores of high-tech retailer Dion-Wired and Masscash, putting 1 440 jobs in the firing line, as it battles to improve its return on investment to shareholders.
The group said on Monday that it was talking to stakeholders on the possible closures, which followed a store-optimisation project that highlighted a number of under-performing stores in its portfolio.
“Consequent to this project, the Massmart Group seeks to advise shareholders that Massmart has commenced a potential store-closure consultation process in terms of section 189 and section 189A of the Labour Relations Act 66 of 1995, as amended, with organised labour and other relevant stakeholders,” the group said.
Massmart’s brands include Game, Makro and Builders Warehouse.
Massmart shares rose 5.8 percent a share from Friday to close at R51.62 on the JSE on Monday, signalling that the market was in favour of its plans to become a leaner business.
An analyst, who spoke on condition of anonymity, said the share price movement could mean that the market was expecting more changes, and believed that the company aimed to play to its strengths rather than trying to be a jack of all trades. “I do believe that they made a mistake expanding the fresh food retail category, for example - it’s not part of their DNA, nor is it their strength,” said the analyst.
Massmart, which has been majority-owned by US giant Walmart since 2010, has been a disappointment. It hit the brakes on paying dividends in the half-year to June 2019, after being pushed into the red on spiralling costs and lower profits.
Walmart moved to appoint veteran executive Mitch Slape as chief executive in September to turn around the company’s fortunes after its chief executive of five years, Guy Hayward, stepped down.
The analyst believed that it was very possible that Walmart had started to become more hands-on through Slape. “It’s no coincidence that this announcement is soon after his September 1, 2019, appointment as chief executive. The company is in need of a significant turnaround, and I believe he was chosen to be that person, because of his M&A background and emerging experience,” said the analyst.
South Africa’s subdued consumer sentiment and the tanking sales of high-price ticket items have seen several Dion-Wired and Masscash stores struggle to keep afloat.
Massmart said in its 2018 annual report that declining customer traffic into major shopping malls where some of its larger stores were based also impacted sales. It said sales of high price-ticket electronic items tanked amid low consumer confidence.
In 2018, Dion-Wired’s sales were below those of 2017 due to, among other factors, limited product innovation and stock supply challenges.
Masscash, which comprises 54 wholesale cash-and-carry stores, including Jumbo Cash and Carry, was also taking strain.
In a bid to enhance Masscash, the group restructured some of the business functions within Masscash and relocated the offices to Johannesburg from Durban in late 2018.
Massmart recorded a 52 percent fall in trading profit to R318.9 million in June, while African currency weakness resulted in foreign exchange losses of R157.1m compared with a R23.4m gain in 2018.