Weakening of sales since early April can be attributed mainly to the 8.8% petrol price increases since March and also to the VAT increase.
Massmart, the parent company of mainstream retailers like Game, Makro, Builders Warehouse, Dionwired, Rhino Cash & Carry, Trident, Cambridge Food and Jumbo, is seeing red and has resorted to a massive rationalisation process that includes cutting down jobs.
The group estimates that its earnings for the six-month period to June, before taking the restructure costs into account, will suffer a 25% to 35% collapse. Game is at the centre of Massmart financial problems which may be reflecting a depressed consumer environment for the low to middle income earners. Other divisions are suffering too.
Massmart CEO Guy Hayward after the group experienced soft sales from Christmas 2017 onward they hopefull that sales momentum would improve in 2018, buoyed by the political and economic optimism prevalent in South Africa at that time. “Whilst the positive impact of South Africa´s political renewal has been good for business confidence, there is little sign currently of any economic recovery amongst our lower and middle income consumers.”
He added that “With the impact of Easter having been annualised, the current sales trends for 2018 are now clearer. For the first 19 weeks of the 2018 financial year, Massmart´s sales of R31.4bn represented total growth of 0.8% and comparable sales growth -0.5%, with year-to-date product deflation of 0.8%.”
Total sales growth from our South African (SA) stores was 0.8%, while the same figure from our ex-SA stores was -0.1%. Group sales growth in Food was -2.3%, Liquor 6.9%, Durable Goods 0.2% and Home Improvement was 6.1%.
Hayward said food sales growths, especially in our wholesale channels, continue to be adversely impacted by deflation in commodities, now including sugar given the recent price decreases announced by that industry. “Similarly, we are seeing deflation in Durable Goods which however is not attracting more customer spending because of the adverse socio-economic pressures experienced by lower- and middle-income consumers who prioritise their spending on food, clothing and transport.”
He said there has been a slight weakening of sales since early April which can be attributed mainly to the 8.8% petrol price increases since March and also to the VAT increase.
He further noted that “In late February we announced internally the decision to relocate major sections of the Game head office from Durban to Johannesburg later this year and to embark upon a formal organisational restructure under section 189 of the Labour Relations Act. The direct costs of these two initiatives are estimated at R116m of which R81m will be accrued in the first-half of this financial year.”
Looking ahead Hayward said “We anticipate that the remaining 2018 sales environment may improve as commodities´ deflation abates and the impact of recent real wages increases filters into the South African economy.”