Massmart CEO says not ready to let department chain fail
Massmart's new chief executive Mitch Slape said on Wednesday (19/02/2020) he was not ready to let the firm's Game department chain fail as the South African retailer undergoes a turnaround plan aimed at cutting costs and boosting profit and margins.
Slape, a Walmart veteran who took over the top job in September, announced a turnaround strategy in January that will see Massmart exit poor performing categories such as fresh and frozen food and re-introduce basic apparel such as shirts and socks at its Game stores.
Majority owned by U.S. giant Walmart, the retailer is also looking at improving stock availability, accelerating clearance of aged stock, re-negotiating rental leases, reducing promotions and introducing new offerings in Game.
It recently completed a store portfolio review to identify stores that were underperforming and is also looking to consolidate its distribution centres from 15 to 7.
"As a responsible retailer unfortunately we had to make some tough decisions on some of our stores and some of our businesses," Slape told reporters, referring to closing its unprofitable 34 DionWired and 11 masscash stores.
Slape said when he was presenting the group's turnaround plan, analysts asked him why he isn't closing Game stores.
"Game is a brand that is highly recognised and valued by customers. It has value in it. (However) frankly speaking our level of execution has not been good at all."
"I'm a believer that if we begin to just fix some of the fundamentals on execution first, we're going to get (an) upside on sales."
Game, a general merchandise chain, has been a drag on group profit and margins as financially constrained customers prioritise spending on non-durables such as food over spending on goods such as appliances.
But part of Games' problems are the firm's own doing, Slape said, as its customer value proposition was unclear. It relied on promotions at the cost of margins, under-served customers and its food and fresh category "was just not working".
"For me it's all about what the opportunity Game represents and I'm just not ready at this stage to say we can't make that thing work. I need to see the basics executed well and then I might be able to say we can't do this," he said.
Massmart has identified savings opportunities of 1.6 billion rand (€98 million) by renegotaiting rentals and other "Walmart-like" cost-saving measures, Slape said.
When Walmart spent $2.4 billion on a stake in Massmart more than eight years ago, it said it was buying a gateway to high-growth markets in sub-Saharan Africa.
But Massmart has expanded very slowly in the rest of Africa and has seen continued sales growth pressure since 2013, with sales contracting for the first time in 2018.