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Walmart-controlled Massmart, owner of Makro, Game, Builders Warehouse and Dion Wired, has suffered a headline loss of R550 million for the six months to end-June – after earning a profit of more than R200 million in the same period last year.
Among other headwinds, the company blamed a 12% increase in costs for the loss. This was due to higher salaries after the introduction of the minimum wage this year, as well as load shedding and steeper municipal tariffs.
Also, it had to sell more of its products, particularly food, on sale. “Cash-strapped consumers continue to spend proportionately more on our sales promotion activities which causes further gross margin pressure,” the company said in its results. Earlier this year Massmart management quoted FNB data that showed that 56% of middle-income consumers in South Africa spent their entire monthly salary in 5 days or less after receiving it.
Massmart, which controls almost 40% of the local market for household appliances, saw a 5% increase in sales in South Africa, while outside of South Africa, sales rose by 6.4%. Massmart also does business in Zambia, Nigeria and ten other African countries.
Its total sales of alcohol jumped by almost 14%, while food (+6.4%) and home improvement (+5%) sales grew. But durable goods sales only increased by 0.6%.
Its prices across all products rose by 2.6% for the past months.
It is difficult to envisage the South African consumer economy improving in the near-term and negative risks seem heightened in the international geopolitical and economic situation, the company warned.
"Massmart's profitability has always been heavily skewed towards the second half of the financial year and particularly the fourth quarter,which includes Black Friday and the Festive season, which makes near-term financial guidance difficult," it said.
Walmart, the world’s biggest retailer, bought Massmart in 2010. The investment has been a great disappointment, and its share price has halved over the past decade.
After Massmart's CEO Guy Hayward resigned in May this year, with no reason provided, Walmart appointed one of its "old hands” to head Massmart. The 52-year old Mitch Slape has been with the US giant for almost a quarter of a century, and will start in his new role on Monday.
