Comparable sales for the 52-week period ending 26 December 2021 grew by 1.7%. Massmart generated a trading profit of R195.4 million, despite the severe impact of civil unrest. This was achieved through a partial offset of the civil unrest losses by insurance proceeds as well as by delivering a 1.2% sustainable decrease in expenses.
Sales performance was challenged by lost sales of approximately R4.5 billion, attributable to civil unrest and the Covid-19 prohibition on liquor sales. Civil unrest in July led to the closure of 43 stores that sustained various levels of damage, resulting in lost sales of R2.7 billion.
A 110-day Covid-19 prohibition on liquor trading resulted in R1.8 billion in lost sales. We estimate the combined lost sales margin associated with these events to be R666.1 million.
Reduced stock availability during the Black November and Festive trading season, as the result of the loss of two Distribution Centres during the unrest, including our primary import processing centre, together with supplier stock-outs arising from unrest disruption in the electronic goods and home appliances supply chains, has not been factored into the aforementioned lost sales estimate.
Continuing Operations exclude Cambridge, Rhino and Massfresh that are subject to sale to Shoprite, but include 29 Game stores, 14 in East and West Africa and 15 in South Africa, that are the subject of advanced divestment discussions with third parties.
Comparable sales for Continuing Operations for the 52-week period to 26 December 2021 grew by 3.0% and delivered a trading profit of R830.6 million. This includes a 7.3% South African Rand devaluation effect on comparable sales in stores outside South Africa, including the 14 Game stores in East and West Africa that are the subject of divestment discussions.
Continuing Operations expense growth was limited to 0.1% resulting primarily from our Smart Spend programme which has delivered R1.6 billion in sustainable expense savings since its inception in 2019.
Commenting Massmart CEO Mitch Slape said, ‘Our sales performance has been challenged by external events that have significantly impacted our high contribution General Merchandise and Liquor categories. It has not however derailed our turnaround momentum, the positive impact of which is becoming evident in our Continuing Operations performance.’
Total Group sales for the 8-weeks to 20 February 2022 of R12.3 billion represents an increase of 1.7% and a comparable store sales increase of 5.1%. Continuing Operations sales of R11.3 billion during the same period represents an increase of 3.6% and a comparable store sales increase of 6.6%.
Turnaround initiatives to simplify and focus the business are mostly complete and include; centralising support functions, outsourcing financial transaction processing, resetting the cost base, integrating the supply chain network, merging the Wholesale business, exiting non-core businesses & markets and strengthening Game.
We have intensified the pivot toward growth in our core General Merchandise, Home Improvement and Wholesale Food & Liquor offerings. This includes investment in e-commerce and increased capital allocation to expand and remodel the store footprint of our high return Makro and Builder’s formats.
Massmart is the number one general merchandise retailer in South Africa and the second largest retail website traffic generator, in which context we achieved a 56% increase in e-commerce Gross Merchandise Value (GMV). This track record together with our buying scale and national store footprint, supported by a sophisticated Distribution Centre network, presents a clear opportunity to become the Business to Business & Consumer (B2B+C)
e-commerce market leader.
Toward this end, we have secured access to Walmart’s global e-commerce technology stack and approved a three-year e-commerce investment plan that is heavily weighted towards creating an intuitive mobile-first online shopping experience. Our objective is to achieve 50% to 65% GMV growth each year for five years.
During the next five years, untapped market opportunities will result in a 50% increase in the Builder’s store footprint in South Africa, generating potential sales of from R1.4 billion to R2.4 billion. Whilst Makro will see a 25% increase in its store network, generating potential sales of from R5 billion to R7 billion. Existing stores in both formats will also benefit from focused store remodelling programmes.
Slape concludes, ’Our prospects for growth are compelling and are based on a realistic market assessment that plays to our core strengths. We are rapidly deploying financial and people resources, with e-commerce technological assistance from Walmart, to take full advantage of the market opportunities before us.’
Altogether 72% of Massmart’s 2022 Capex budget has been allocated to investment in e-commerce and, Builders and Makro new store development and remodelling projects.