Mitchell Slape. Picture: REUTERS
Mitchell Slape. Picture: REUTERS

Retailer Massmart Holdings’s new CEO has his work cut out for him, starting with reversing a situation in which costs have grown faster than sales.

Mitchell Slape, who will begin leading the Walmart-controlled company next week, is charged with turning around a business, which on Thursday reported a first-half net loss of R836m from a year-earlier profit.

The Walmart veteran will be confronted with a moribund domestic economy and embattled consumers, all while driving an expansion in the company’s African store footprint.

“We have controlled costs very well for the last few years and kept it well below sales growth, but unfortunately this year it popped up,” outgoing CEO Guy Hayward said in Johannesburg.

‘Robust’ cost management

The company will need to continue its “robust” cost management by using its size to improve efficiencies, keeping its IT systems functioning smoothly and improving workforce scheduling, among other initiatives, he said.

Unum Capital equity trader Rob Pietropaolo said: “We will have to see what the new CEO does and how he plans to drive growth in an economy where they are struggling to make money across all of their businesses.

“It is not a very consumer-friendly environment. The sales are slightly up but their net profit is down massively. I do not see that changing unless there is a fundamental shift in consumer sentiment,”  he said.

The owner of Makro and Game stores is already engaging with landlords, who have been “very sympathetic” to the challenging local economic environment, to negotiate affordable lease renewals, Hayward said.

Occupancy in African markets, where the company’s leases are often dollar based, has also weighed on rental costs. Other contributors to Massmart’s 12% increase in expenses were security costs related to a spike in petty crime in SA. Massmart spent more on maintaining and fuelling generators amid rolling blackouts in the country, Hayward said.

The retailer’s shares climbed as much as 8.1% in Johannesburg trading, their biggest gain since November 2018. It eventually closed 7.86% higher at R42.69.

“The markets are probably cheering the arrival of the new CEO with hope that he could possibly turn things around, but I would not be surprised if its share price rally is very short-lived,” Pietropaolo said.

Massmart will also invest more in its online store capacity, with the category making up 0.8% of total sales. Apart from a technical “blip” which saw online sales in Makro drop in the first half, the segment of the business has grown aggressively, Hayward said.

“We think online is really exciting,” he said. “I think our online participation could climb steadily from 1% to 5%” in the medium term.” /With Odwa Mjo

Bloomberg