Makro’s small-format stores a good plan, says portfolio manager

Evan Walker, portfolio manager at 36ONE Asset Management, says it is a good strategy for Massmart to replace Game stores in malls with small-format Makro stores.

Massmart is owned by the global retail giant Walmart. It was delisted from the Johannesburg Stock Exchange in November 2022.

Massmart owns numerous well-known retail brands, including Game, Makro, Builders Warehouse, Jumbo and Shield.

Game is the weakest link in Massmart’s operations. It has been loss-making for years, with many analysts suggesting it should be closed down.

Massmart’s latest strategy to test small-format Makro stores in Game locations should not come as a surprise.

The smaller Makro stores will be situated in the Game store site. They will be merchandised and branded as a small concept 3,000-square-meter Makro store.

Makro did not reveal where it planned to launch the pilot, saying the locations would be announced later.

Group corporate affairs head Brian Leroni said the objective is to make Makro stores more accessible to a wider market. It is also an important part of Makro’s omnichannel strategy.

Leroni said the concept’s development was at an advanced stage and has been tested with focus groups.

“We have been delighted by strong expressions of support from landlords, suppliers, consumers, and our own staff,” he said.

Massmart is now involved in the practicality of rolling out the test stores and anticipates completion early in the second half of the year.

Evan Walker, portfolio manager at 36ONE Asset Management

Walker told The Money Show that this strategy is not new. It was considered ten years ago but did not materialise because the previous Massmart management saw value in the Game brand.

Walker supports the initiative, saying Makro is a very good business with a strong brand across the country.

He said they supported the strategy of converting Game stores into small-former Makro stores ten years ago, and it still makes sense.

“The combined Makro and Game store turnover have a lot more critical mass from a marketing and pricing perspective,” he said.

“The only way they will be competitive is through price, especially against eCommerce players like Takealot, Amazon, Temu, and Shein.”

He added that converting Game stores into small-format Makro stores will increase Makro’s walk-in customers and expand its distribution network.

Makro has a strong eCommerce focus, and having more stores to serve as distribution centres will strengthen its online shopping capabilities.

“We have seen what Checkers has done with Sixty60, and Makro has to match that on the retail component,” he said.

Makro used to be a wholesale specialist, which required customers to be business owners with a Makro card.

However, this is changing. It has become much easier for everyone to shop at Makro, and the company is looking to do away with cards in its new small-format stores.

“With the new small format stores, Makro is getting closer to retail customers from a retail and online perspective,” he said.

Walker said the success of small-format Makro stores depends heavily on price. “Depending on where the pricing strategy is pitched at the retail level, it could be a very competitive offering.”

“It all depends on whether they can get their pricing strategy to work in the smaller stores and get their cost base down to support the lower-cost margin.”

This article was first published by Daily Investor and is reproduced with permission.

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Makro’s small-format stores a good plan, says portfolio manager