Massdiscounters: Push button for growth

It is fair to say that 2014 was a tale of 2 halves for Massmart, with its electronics division Massdiscounters taking a hit in the first 6 months before staging an impressive rally towards year end.

Back in June, in his statement after the company’s annual general meeting, Massmart’s new chief executive, Guy Hayward said: “For the remainder of the year, we are hopeful that the current sales performance continues, although economic data seems not to support this.

“We are looking to a gradual recovery in the financial performance at Massdiscounters as the new strategy and operational focus takes effect.”

massdiscounters-tvFor the first 21 weeks of the 2014 financial year, Massmart’s total sales growth was 9.8 per cent and comparable sales growth was 7 percent, with year-to-date inflation running at 4.5 percent. Massdiscounters increased sales by 6.9 per cent.

Hayward said that all divisions were performing satisfactorily, other than Game stores where comparable sales grew by only 0.5 per cent and margin pressure remained.

“We are feeling more confident that the strategy being implemented is starting to show in operating performance, albeit not yet in financial performances.”

Massmart had previously said the popularity of all-in-one devices meant consumers were now shying away from gadgets such as cameras, laptops and MP3 players. “People now have access to video, camera, MP3s on their phones and smartphones. We are not going to do away with these devices but rather reduce stock,” former chief executive Grant Pattison said previously.

However, in mid-January of 2015, the JSE-listed general retailer was able to report that total sales for the 52 weeks to December 2014 surged 10.4 per cent to R78.2 billion. Massdiscounters played its part with a resurgent increase in store sales by 10.2 per cent with inflation of 3.1 percent.

Massdiscounters operates 2 retail formats in Game and DionWired. The corporate website describes the activities of each:

“Game is a discount retailer of General Merchandise and non-perishable and dry groceries for home, leisure and business use, operating throughout South Africa and in 14 cities in sub-Saharan Africa. Traditionally Game has been a discounter of General Merchandise, but our format renewal, with the introduction of perishable food has intentionally pushed the brand towards a multi-category format. We now have 107 Game stores in South Africa and 14 in Africa, bringing our total footprint to 121, with 48 stores now also providing fresh food.

“DionWired is a South African electronics and appliances speciality store catering for the middle- to upper-end income consumer and currently has 22 stores.

“Massmart bought Dion in 1993 and Game in 1998, merging them a year later. At that time, both operated similar, competing formats and the decision was taken to close or convert all Dion stores to Game where this was facilitated by impending store lease terminations. A core of 10 Dion stores was retained in Gauteng until those leases came up for renewal, and in 2008 all these stores were closed or converted to Game.”

Undoubtedly, as already intimated, advances in technology have put pressure on certain products, and there is an onus on both brands to adapt. Both Game and DionWired have clearly defined their positioning through value propositions, as the company website outlines:

“At Game our positioning offers customers the widest range of branded products, at the best price for a given set of product specifications and a quality guarantee for customers. We ensure that customers are assured of the best value at every logical price point. The Game trading model is promotionally-driven, with 5 million copies of our weekly promotional leaflets distributed in South Africa. By working closely with our suppliers and benchmarking ourselves against competitors, we are able to offer our customers well-priced products representing great value.

south-africa-keyboard“Currently 48 Game stores provide a perishable food offering adding further everyday value to our customers. Over the next few years, we intend to roll out perishable food to most Game stores.

“Game Liquor was included with the format renewal to complete our offering and increase foot traffic. We now have 30 Game Liquor stores, which are performing in line with expectations.”

Whilst diversity of product range is important to Game, DionWired has focused on market share within the electronics space, as its value proposition underlines:

“In the minds of South Africa’s discerning and tech-savvy customers, DionWired has positioned itself as South Africa’s premiere consumer electronics and appliance concept store, inspiring customers with their comprehensive range from audio, TV, DVD and satellite products to gaming and movies, computing, appliances, photography and GPS. This is complemented by a full bouquet of solution driven services including in-store and on-site technical support to extended warranties and connecting solutions. DionWired offers complete technological solutions, demonstrating in-store the interconnectivity of the latest innovations and industry leading branded merchandise with extended product offerings that include specialist brands and ranges. The Tech experts manning our in-store Tech Smart service centres are on hand to offer the best advice and onsite repairs and services.

“Although we guarantee our merchandise is everyday competitively priced, DionWired’s value proposition is not founded on price alone. Our main proposition is to offer the widest range of some of the world’s leading and discerning brands such as Apple, Smeg, Miele, Marantz, Bose and Onkyo to the South African higher-income consumer.”

While the economy affects consumer habits and places food as a priority on budgets, there is only ever likely to be limited growth opportunity for Massdiscounters. However, the brands survived the rigours of the past 2 years and have learned valuable lessons.