• Massmart saw its profits plunge by R1.73 billion in 2019, due to disastrous trading at Game and DionWired, and in the division that houses Cambridge Food and its Jumbo and Rhino store brands.
  • But Builders Warehouse and Makro continued to make decent money for the Walmart-owned group.
  • Massmart's CEO has promised that "Makro will remain Makro" – but big changes are coming to Game stores.
  • For more stories go to www.BusinessInsider.co.za.

Massmart, the JSE-listed group that owns Game and Makro, on Thursday reported a R1.73 billion turnaround in its profits in 2019, plunging from a net profit of R869 million in 2018 to a net loss of R861 million last year.

The group reported a couple of bright spots in minor metrics, such as a 4% increase in foot traffic at Game stores, though that led only to a 1.9% increase in sales.

But by all financial measures applied to retailers and wholesalers, the results for the year up to 29 December were disastrous. For the group as a whole, trading profit was down 46.3%, gross margins dropped to 18.9% (from 19.5% in the previous year), expenses grew at 10.2% – compared to overall sales growth of 3%.

Massmart's share price plummeted by almost 4% on Thursday morning, and is now trading at less than half of its value a year ago.

See also: Game stores will ditch food and bring back cheap clothing – here's what we know about its turnaround plan

The horrible performance was not evenly spread across Massmart's divisions, however. The unit that houses Makro and Fruit Spot stores recorded a trading profit of R935 million. Builders Warehouse stores, which in combination are about half the size of Makro in terms of sales, showed a R670 million trading profit.

By contrast, the Massdiscounters division, which combines Game and DionWired, had a trading loss of R675 million. Masscash – a division just about as big as Makro through the combined weight of Shield, Cambridge Food, and the Jumbo and Thino trading brands – saw a trading loss of just over half a billion rand.

In 2019 Walmart sent a veteran of its operations in various parts of the world, Mitch Slape, to head up Massmart, weeks after CEO Guy Hayward resigned.

See also: Game’s owner has started to squeeze its suppliers, Walmart-style – and landlords are next

Slape has set in motion big changes throughout the group. Game stores are dropping fresh and frozen food, and going big on everyday clothing. The entire DionWired chain could be closing down. The group has also started squeezing its suppliers, in a fashion pioneered by Walmart, and intends to stop paying big escalations in rentals for its stores. 

Like its trading performance, those changes will not be evenly spread. He is comfortable with the way Makro operates, Slape said earlier this month, and the concept of a warehouse chain with a backbone of wholesale to smaller retailers but with access for the general public won't change.

"We’re not going to go out and do a bunch of changes to Makro; Makro will remain Makro," Slape told journalists.

See also: 50 years later, Dion stores could be disappearing from SA – this time for good

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