Massmart not a priority as Walmart focuses on global issues

When Walmart first caught Massmart in its net it was with the intention of chasing new business throughout Africa, but six years on the US retail giant has bigger fish to fry. One of these is defending market share in the US against the advance of e-commerce retailer Amazon, which is planning floating warehouses, drone deliveries and voice-shopping capabilities for its customers.

It is perhaps no surprise then that when the world’s largest retailer reported on its second-quarter results earlier this month, it celebrated a 60% boost in online transactions but made no mention of expanding its operations in Africa.

“In the context of trying to take on Amazon in the US with giant airship warehouses, powering ahead in the Chinese market or implementing a recovery at Asda in the UK, opening a couple of Game stores in Ghana suddenly seems slightly less of a strategic imperative,” said Bryan Roberts, global insight director at TCC Global in London.

Amazon has traditionally led the online retail space in the US but Walmart has moved to beef up its e-commerce capacity with a number of acquisitions, including the purchase of online retailer Jet.com for $3.3-billion (about R43-billion) last year. Jet.com’s founder Marc Lore now heads its e-commerce division.

With Walmart focused on reviving its core business in the US, building a presence in highly competitive China and improving its position in the UK, rapid expansion in Africa was likely to fall down its list of priorities, said London-based Bloomberg Intelligence retail analyst Charles Allen.

Massmart, which owns 415 stores in South Africa and 13 elsewhere in sub-Saharan Africa, accounts for just over 5% of Walmart’s international division revenue and 3% of the division’s operating profit. On Thursday, the company reported a 10.7% decline in profit to R337-million as sales stalled.

Massmart CEO Guy Hayward said it was up against the “most difficult trading conditions retailers have faced in recent memory”. Speculation that Walmart’s global priorities and Massmart’s marginal contribution to its total revenue could see the global retailer exit Africa has been in circulation for months, but Walmart this week confirmed its commitment to the partnership.

“Given the trading conditions that Massmart has to operate in, not to mention the world-class competition in the South African grocery space, I don’t think Walmart can have any complaints over its performance,” Roberts said. “There have been interesting developments in private label, e-commerce and pricing, and Massmart continues to grow and remain profitable.”

Despite the slump in sales, Massmart reported “good traction” in online sales, with Makro and DionWired recording growth of 48% and 24% respectively, following considerable investment in e-commerce skills – although this is likely to be off a low base.

When Walmart took control of Massmart in June 2011, it paid R16.5-billion, or R148 a share. On Thursday afternoon, Massmart’s share was trading at R124.

“Massmart might not be setting the world on fire, but it is growing, profitable and it offers other benefits such as insights into home improvement,” said Roberts. “Walmart’s general approach to retail is one of marathon rather than sprint and there’s no reason Massmart should be any exception.”

Walmart had shown in the UK, Brazil, Japan and Canada that if it believed in a market, it had the patience and relatively deep pockets to stick out difficult periods, he said.

Allen expected Massmart’s foray into the rest of Africa to take off more aggressively in the 2020s and beyond. “I think that generally it has been harder to grow in some of the more populous countries than was assumed a few years ago.”

Massmart plans to open eight more stores in sub-Saharan Africa in the next two years.

“If you look more at sub-Saharan Africa, most GDP forecasts are for anything from 5% to 10%. As a long-term growth vector most of us are pivoting into Africa and rolling out our stores,” Hayward said.

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