Game’s owner has started to squeeze its suppliers, Walmart-style – and landlords are next
- Massmart, the owner of Game and Makro, is already saving money through "tried-and-true Walmart programmes" implemented as part of its turnaround strategy, says CEO Mitch Slape.
- Walmart is famous for squeezing suppliers – and that's where Massmart is starting.
- An e-auction for transport between its distribution centres has already saved it tens of millions of rands, Slape says.
- Now in the crosshairs: landlords, and the "ridiculous" annual escalations built into rental deals.
- For more stories go to www.BusinessInsider.co.za.
Massmart, the Walmart-controlled group that owns Game, Makro, and Builders Warehouse, has started to implement some of its parent company's strategies to keep costs low, its CEO says – and suppliers are likely to feel the effects.
Walmart veteran Mitch Slape was sent into Massmart to fix the long-struggling retail and wholesale chain last year, and the first set of results under his leadership are due next week.
The South African group has now started to implement "tried-and-true Walmart programmes", Slape told journalists on Wednesday. Eventually that should mean lower prices in stores, to attract buyers and drive revenues, but that process starts with squeezing costs.
See also: Game stores will ditch food and bring back cheap clothing – here's what we know about its turnaround plan
"What i’m following is largely the Walmart playbook on how to do this," said Slape.
That involves cutting costs to "create fuel for the business", reinvesting the money made available in a fashion that gets customers buying, and then creating a virtuous cycle of lower prices increasing sales.
But first the costs need to be cut, and that is something Walmart is famous for, via direct sourcing and aggressive negotiations with suppliers that find themselves on the wrong end of the power balance due to Walmart's scale.
Transport companies in South Africa have already experienced that, recently, and landlords are next.
Massmart has so far conducted two Walmart-style "e-actions", Slape said, starting with transportation routes between its distribution centres.
That competitive process, Slape said, saved the company "substantial money, I’m talking tens of millions of rands".
Massmart is now in negotiations with many of its landlords as it consolidates its mega-warehouse distribution centres – from 15 to 7 – and demands lower rentals for Game outlets, plus an end to big annual increases in rentals.
“Escalations in this market are ridiculous, they are ridiculous," said Slape, who has worked for Walmart in Mexico, India, and Japan.
"There is nothing that justifies them, and we will begin to change that."
Annual escalations of 7% are not unusual in rental contracts, even though consumer inflation is currently hovering at around 4%, and some current contracts in the South African market still carry double-digit percentage increases.
"There is no way retail will survive paying those escalations, and it is time for the market to get rational," said Slape.
Massmart will not "bang the table" to get lower rental rates, he said, but will try to explain to landlords that if prices don't come down, there won't be retailers left to do the renting.
Slape would not say what he considers to be a reasonable level of escalation – just that it needs to be "fair".
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