Walmart takeover good news for Massmart – Fred Razak

Fred Razak, chief trading strategist at CMTrading, says Walmart’s intention to buy out and delist Massmart is good news for the retailer.

In August, Massmart said its board of directors reached an agreement with Walmart to buy all the shares in Massmart.

Massmart is one of South Africa’s largest and most prominent retailers and owns top brands like Makro, Game, and Builders.

Walmart offered R62 per share – a 53% premium to the closing share price before reaching the agreement.

Razak said buying out and delisting Massmart positions the American retailer for the next five to ten years.

Massmart has had a few difficult years, and in August, it announced a 51% decline in headline earnings for the 26-week period that ended June 26.

It translates to a potential loss of R975 million compared with a R645 million loss in the previous comparable period.

These figures won’t have factored into Walmart’s decision to buy out the beleaguered retailer, said Razak.

“These deals don’t happen overnight. Ultimately, they won’t be thinking about the business for today. They are thinking five to ten years down the line,” said Razak.

“Walmart is Amazon’s biggest rival. While Walmart is a retailer and Amazon is a digital presence, they compete for the same people’s attention.”

Africa is one of the fastest growing population areas in the world, which makes it a future battleground for big retailers.

Walmart’s contention is that the retail experience still has much to offer, particularly in emerging markets like Africa.

“Amazon is restricted when it comes to feeling and touching the products. In rural areas, people still like to go into a store and see what’s on offer,” he said.

Razak explained that Walmart’s vetting regarding the quality of products and brand standards would also help them to expand in Africa.

He believes Massmart’s challenges go beyond logistics disruptions during the pandemic and the KwaZulu-Natal looting.

He said long-term mismanagement also played a role and that it would take time to fully position the brands for expansion.

“Mismanagement doesn’t necessarily mean being corrupt about how they allocate the funds,” he said.

It can include losing clients, not maintaining high customer satisfaction standards and a lack of sales morale.

Razak believes that while changes will be implemented slowly in the Massmart stable, most stores won’t be closed down, and its brands won’t vanish from the South African retail space.

“To build a recognisable brand takes decades, and Walmart won’t want to give that up,” he said.

“I don’t think they will change the names, but they will do brand refreshes alongside new logos,” he said.

He added that the Walmart culture is geared toward maximising retail, and that’s what people will see in South Africa.

“New, highly efficient versions of the brands we knew before expanding into Africa and potentially dominating the space much as they do elsewhere.”