Massmart waiting for new blood
A host of problems and failed expectations made a change at the top inevitable. The new CEO should preferably be a strategist
With the share price almost 50% below its 12-month peak, there was little surprise from the market at the departure of Massmart CEO Guy Hayward. It comes a week after the news that CFO Johannes van Lierop was stepping down.
Van Lierop will be replaced in August by Illovo Sugar CFO Mohammed Abdool-Samad.
Hayward has been at Massmart since 2000, in finance, then in 2012, in operations, and for the past five years as CEO. Before that he worked in finance at CNA Gallo and the Malbak industrial conglomerate.
Hayward won’t be leaving on a high note. In the year to December 2018, sales were up only 3% and headline earnings were down a whopping 32%.
Jiten Bechoo, retail analyst at Avior Capital, says the diversification of the group, between retail and wholesale and food and liquor and durables, should make it a reliable dividend payer, but in fact the 2018 dividend was cut by 40%.
Independent retail analyst Chris Gilmour had hoped Massmart would disrupt the SA retail sector after US giant Walmart took control in January 2011, but it has not happened. Walmart paid R32bn to take control of Massmart — now its 51% is worth barely R10bn. The fall has been even worse in dollar terms, from $4.6bn to $690m.
The market is concerned that there is always another one-off unforeseen problem in the group
Even the much-trumpeted expansion in Africa has been muted relative to Shoprite and even Pick n Pay. Massmart’s capital expenditure of R1.6bn was the lowest for four years. But an expansion of Game and Builders Warehouse into Kenya is finally on the cards. Zambia is also earmarked for expansion.
Bechoo argues that Walmart was distracted by problems in its home base in particular, as Amazon expanded from books to general merchandise, especially in 2012 and 2013.
"The market is concerned that there is always another one-off unforeseen problem in the group."
Recently 20 people were dismissed from the Massfresh food business for irregularities, says Gilmour.
The big disappointment last year was Massdiscounters (Game and Dionwired), in which trading profit fell by 92%.
Hayward made the controversial decision to move the Game head office from Durban to Joburg, even though Game had been highly successful in its KwaZulu-Natal base for most of its more than 50-year history.
The Massbuild division, consisting of the Builders chain, saw flat trading profits, which could get worse as French-owned competitor Leroy Merlin rolls out in SA.
Hayward is not being pushed hard, as he will be able to stay until the end of the year. Massmart chair Kuseni Dlamini described Hayward as a principled man of the highest integrity, who "guided the evolution of our business". His personal highlights of Hayward’s leadership included "our contribution to the growth of an inclusive economy … as well as our willingness and effectiveness in partnering with Gift of the Givers in disaster relief".
Bechoo says while he has no personal gripe with any of the Massmart team, he expects that an outsider will be appointed, ideally more of a strategist than an operator. Perhaps it will be somebody in the mould of Massmart founder Mark Lamberti.
"Hubert Joly, CEO of the US durables retailer Best Buy, came from the travel trade. He has rolled out concepts such as showrooming — showing a limited range in a high-traffic location with the rest of the range available online," says Bechoo. "Massmart has a long way to go to reach international standards in its online offering."
If Massmart follows the Best Buy route, Bechoo argues, its Masscash business will no longer be a good fit. It has extremely low margins in wholesale and low-end retail businesses such as Rhino and Cambridge Foods and, according to Avior, poor returns on capital.
In fact, it had a strong 2018, with trading profit up 48%, but at R190m it is dwarfed by the R1bn from the core Makro business.
Hayward’s monument will be the new Makro at Cornubia near Umhlanga, a 19,000m² mammoth, though hopefully not a white elephant.