THE BOTTOM LINE
Massmart isn’t in the wars, it’s in intergalactic conflict
As the biggest decliner among the major retail stocks, you might hope for a dramatic reversal. Not impossible?
If it’s true that Shoprite has been in the wars, what kind of intergalactic conflict has Massmart been involved in? The retail sector has been hit by the perfect storm, including everything from deflationary prices to the VAT hike, to the soft economy. But of all the retailers, the wars have been particularly hard on Massmart. Why?One way to measure the difference is just to compare the share prices of the different retailers since the US giant Walmart said it wanted to buy a 51% stake in Massmart in 2010. Since then, Shoprite is up 117%, Woolworths is up 81%, and Pick n Pay is up 54%. Massmart is down 20%.
Three things count in Massmart’s favour against this measure. First, it comes off a high base, since Massmart’s share price was boosted by Walmart’s bid. Massmart was already at that point a well-run store, so the idea that Walmart was going to make a miraculous difference was probably a bit over-enthusiastic.
And third, comparing Massmart to general retailers is somewhat unfair. Massmart’s big problem has been its durable goods sales. As the economy has slowed, consumers have cut back, as you would expect. But typically, they do so unevenly, and obviously durable goods are at the front of that list.
Should Massmart not have anticipated this trend? In some ways, the company did, introducing food into many stores that previously sold only durable goods precisely in order to balance out the different economic cycles. Expansion in promising areas of the business, of which there are many, was also active.
But it was not enough. As the biggest decliner among the major retail stocks, you might hope for a dramatic reversal. It’s not impossible, but with the best will in the world, that doesn’t seem likely very soon.