Massmart is pushing for a complete overhaul of its operations in South Africa after counting losses as high as R1.4 billion in 2019.
In a presentation to investors published on Thursday 30 January, the retail and wholesale group laid out its road map for the business going forward – with the planned closure of Dion Wired stores just the start.
According to the group, its sales growth has been under continued pressure since 2013, with sales contracting for the first time in 2018.
Earnings before tax have been depressed since the global economic crisis in 2008, and in 2019 it expects losses to reach between R1.2 billion and R1.4 billion.
“The business has the portfolio to achieve historic EBIT performance. To achieve this, though, we require urgent and deliberate intervention,” it said.
The group said that it has a strong portfolio of trusted and respected brands, but it has not operated them with any focus.
Adding to this, the different segments have worked in silos, leading to duplication of some functions, and limited or no collaboration between different brands.
This is what it now plans to change – starting with a restructuring of the disparate businesses, an assessment of which brands are working, and the rebuilding of these brands.
As of 1 February 2020, the group said that it will be consolidating its four divisions – Masscash, Masswarehouse, Massbuild, and Massdiscounters – into two units.
- Massmart Retail – This unit will comprise of the Builders, Game, Dion-Wired and Cambridge Food trading brands. Llewellyn Walters, the current Builders chief executive, has been appointed as the chief executive of Massmart Retail;
- Massmart Wholesale – This unit will comprise of the Makro, Shield and Wholesale Cash & Carry trading brands. Doug Jones, the current Makro chief executive, has been appointed as the chief executive of Massmart Wholesale.
Dion Wired and Game
Massmart has noted a significant performance deterioration in Game stores, and an extreme under-performance in Dion Wired, which has resulted in poor customer experience, declining financial results and pressure on other businesses in the group to compensate for this.
In January, the group identified 23 Dion Wired stores and 11 Masscash stores which are flagged for closure.
The outcome of this depends on how the retrenchment process goes, but the group said that the decision to shut the stores came after a comprehensive review of its portfolio.
The same review has led the group to look at Game stores, and how they fit into the bigger picture.
Speaking to MyBroadband, Massmart has already indicated that – should the Dion Wired shut down go through – Game stores will take over the servicing responsibilities of products bought at Dion Wired, hinting at Game’s future role in the group.
However, according to the group’s presentation, Game will also have to be overhauled, in what it calls going “back to basics”.
“Game’s customer value proposition is unclear, with a lack of resonance in key growth segments,” it said.
There is a lack of coherence in its offering, an over-reliance on promotions, and certain segments – like fresh and frozen foods – are simply not working.
To counter this, the group wants to phase out frozen foods, movies and music at Game, and reintroduce other categories – such as clothing and apparel basics.
It also wants to boost its multimedia and baby product categories and introduce new categories like health and wellness.
This will be on top of its other plans to address customer service levels, stock issues and overheads, which extend to the other brands within its portfolio.
“The landscape has changed, and we have been slow to adapt. But we are now changing, and we’re acting with urgency,” the group said.
You can view the investor presentation below: