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Johannesburg – South African retailers will have to up their game if global retail giant Walmart Stores succeeds in setting up shop in the country. But local consumers may look forward to lower prices.
This is the view of analysts as they consider the likely impact of Walmart acquiring local retailer Massmart Holdings [JSE:MSM].
Announcing the bid on Monday, Doug McMillon, president and CEO of Walmart International, said it was Walmart’s mission to save people money, and the proposed acquisition was a great opportunity to deliver on that mission for all the people in the regions of the African continent where Massmart currently operates.
“The benefit of being big is that you have economies of scale. You can source products cheaper and pass (savings) onto consumers,” said Abri du Plessis, chief investment officer at Gryphon Asset Management. “They (Walmart) are definitely going step up competition. South African retailers will have to sharpen their pencils.”
Du Plessis added Walmart would also beef up Massmart’s product range through its international networks, pushing local competitors to also enhance their offering.
Warren Buys, a portfolio manager at Cadiz Asset Management, said the impact of Walmart’s entry into SA (if it happened) wouldn’t be felt immediately. However, he too expected Massmart prices to be very competitive due to Walmart’s ability to source internationally and its bulk buying power.
That suggests shoppers at Game and Dion Wired, the general merchandise retail brands in the Massmart stable, could see reduced prices if the deal goes ahead – a situation that will surely put pressure on other retailers to follow suit.
“Retailers would feel some pressure on their gross margins if they need to become more price competitive,” said Buys.
Though greater competition is good for consumers, SA already has a very competitive retail industry, reckons Du Plessis, adding margins are actually low.
Prices: Walmart vs Massmart
A quick online comparison of prices at Walmart, Game and Dion Wired raises hopes for local consumers.
Many factors – including transport costs, import duties, different tax rates and the sheer economies of scale offered by the massive US market – complicate such a comparison. But it gives some indication of the price gap on merchandised goods between the retailers.
These prices were published on the retailers’ websites on September 29 2010:
This is the view of analysts as they consider the likely impact of Walmart acquiring local retailer Massmart Holdings [JSE:MSM].
Announcing the bid on Monday, Doug McMillon, president and CEO of Walmart International, said it was Walmart’s mission to save people money, and the proposed acquisition was a great opportunity to deliver on that mission for all the people in the regions of the African continent where Massmart currently operates.
“The benefit of being big is that you have economies of scale. You can source products cheaper and pass (savings) onto consumers,” said Abri du Plessis, chief investment officer at Gryphon Asset Management. “They (Walmart) are definitely going step up competition. South African retailers will have to sharpen their pencils.”
Du Plessis added Walmart would also beef up Massmart’s product range through its international networks, pushing local competitors to also enhance their offering.
Warren Buys, a portfolio manager at Cadiz Asset Management, said the impact of Walmart’s entry into SA (if it happened) wouldn’t be felt immediately. However, he too expected Massmart prices to be very competitive due to Walmart’s ability to source internationally and its bulk buying power.
That suggests shoppers at Game and Dion Wired, the general merchandise retail brands in the Massmart stable, could see reduced prices if the deal goes ahead – a situation that will surely put pressure on other retailers to follow suit.
“Retailers would feel some pressure on their gross margins if they need to become more price competitive,” said Buys.
Though greater competition is good for consumers, SA already has a very competitive retail industry, reckons Du Plessis, adding margins are actually low.
Prices: Walmart vs Massmart
A quick online comparison of prices at Walmart, Game and Dion Wired raises hopes for local consumers.
Many factors – including transport costs, import duties, different tax rates and the sheer economies of scale offered by the massive US market – complicate such a comparison. But it gives some indication of the price gap on merchandised goods between the retailers.
These prices were published on the retailers’ websites on September 29 2010:
Product |
Walmart |
Game |
|
LG 42” HD TV |
$598 (R4 170) |
R7 999 |
|
Wii fit Plus |
$98.54 (R686) |
R1 199 |
|
Samsung external hard drive 2.5” – 640GB |
$119.84 (R835) |
R700 (500GB) |
Product |
Walmart |
Dion Wired |
|
Apple iPods 160GB |
$229.54 (R1 600) |
R2 600 |
|
Kettles |
$15 - $40 (R97 – R279) |
R279 – R749 |
|
Laminators |
$30 - $417 (R209 – R2 900) |
R169 – R4 000 |
- Fin24.com
