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Just how broken is Massmart’s Game?

January 12, 2022
Just how broken is Massmart’s Game?

Massmart’s announcement in late December that it had identified 15 Game stores “that will be subject to a possible sale” is curious.

The fact that 15 of its current 114 stores are likely not profitable is not the weird part. What is strange is that Massmart seems to believe that it will find willing buyers for a disparate group of stores that it simply no longer sees value – or upside – in.

What will purchasers be buying? A lease? Not exactly attractive. Loyal customers? Nope. Access to Massmart’s supply chain? Unlikely.

Perhaps couching the decision in this way is more palatable from a public relations point of view right now, particularly after the high-profile decision to close all 23 DionWired stores in 2020.

It will be left with a footprint of 99 stores. Contrast that with 77 Incredible Connection or 51 HiFi Corp stores (or even 22 Makro stores, many of which occupy the same footprint as some Game stores), and one could reason that conceivably 114 stores in South Africa was a stretch too far.

These are not direct comparisons (Makro is the closest), but Pepkor-owned Incredible and HiFi Corp compete with Game directly in some core categories: televisions, computers, and to some extent appliances. In fact, most of the space formerly held by the DionWired store at Attacq-owned Mall of Africa is now taken up by a new HiFi Corp outlet.

Massmart is also selling its 14 Game stores in non-SADC markets (west and east Africa) and said in December that it anticipates “being in a position to further update the market in the coming weeks”.

One gets the sense there will be news on the SA front before it releases its annual results in March. At that point, there will at least be clarity on whether it has managed to find buyers for the 15 stores.

Importantly, it should also offer insight into which of its 114 stores are not viable.

Perversely, stores in more outlying areas may actually be more profitable than those in major metros due to the relative absence of competition.

Massmart notes that Game was the most impacted [in its stable] by the July 2021 unrest. At the time it said that “protesters gained access to and made off with merchandise in 18 Cambridge stores, 10 Game stores, 8 Builders stores, 3 Cash & Carry and 2 Makro stores.” Lost sales at the 10 Game stores are almost certainly dwarfed by the two Makro stores impacted.

Admittedly, there is also some distortion from non-South African stores (mostly due to currency movements). In the 48 weeks to end-November, sales in stores outside of SA were down 13.6%. This is a smaller base of stores, but it does drag overall sales lower.

It must be remembered that Massmart has ripped fresh food departments out of the Game stores and replaced this space (somewhat) with basic clothing.

The fundamental conundrum facing Slape is whether the Massmart leadership team can position Game into a compelling destination.

In theory a grocery and general merchandise retailer ‘ought’ to work, but trying to compete on everything from TVs and electronics to computers, appliances, dry groceries, sports and leisure, home and DIY, and clothing basics is not easy (after the ‘re-lay’ of its stores, at least they look more appealing).

There are certain categories where its selection is so limited that one might reasonably question why it continues to stock items in that segment at all (for example the DIY and car-care categories). And how long will it continue to run liquor stores?

Investors will know more soon as details of the sale of the east and west African stores and the potential sale (or shutdown) of the 15 local stores are finalised. Trading last year is what it was – nothing can change that.

There is some indication that patience is being stretched (selling one in every 13 stores is definitely not a sign of a business in rude health). But Slape is demonstrating he is not afraid of making big decisions, something Massmart’s leadership has long avoided.

What, then, if Massmart cannot grow Game’s sales this year on the 2021 base (which will have been knocked by July’s civil unrest)? Then it will surely be time to throw in the towel ….-moneyweb

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Last modified on Wednesday, 12 January 2022 15:23
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