Massmart subsidiary builds slowly from base in south Africa, even as continent’s consumer course grows
A video game supermarket in southern Africa. Massmart’s residence market accounts because that the bulk of the retailer’s revenue on the continent. Photo: Waldo Swiegers/Bloomberg News
JOHANNESBURG—After part costly stumbles on its in march into occurring markets, Wal-Mart WMT 0.31% shop Inc. Has adopted a various strategy because that Africa: taking it easy.
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When the U.S. Sleeve behemoth purchase a $2.4 billion majority stake in southern African retailer Massmart Holdings Ltd. MSM 2.39% in 2011, it trumpeted the potential of the continent’s burgeoning customer class. At the time, Massmart had actually 26 stores external its residence market; in the 5 years since, it has included only 13 the its signature huge destination-type outlets. In that exact same span, through contrast, rival Shoprite Holdings Ltd. SHP 1.46% has opened 182 of its mainly smaller, grocery-centric stores exterior South Africa, for a total of 375.
Some experts and investor wonder even if it is Massmart’s slow expansion way Wal-Mart is shedding interest in its african venture. However Guy Hayward, that took over as Massmart’s chief executive, management in June 2014, says the modest speed is part of “a really deliberate strategy” and not a authorize of weakness.
“If being kind of stable Eddie is described as a criticism, ns happy to it is in criticized,” claimed Mr. Hayward, a south African native who joined Massmart in 2000.
In August, Massmart announced plan to open up five new stores in Africa past its residence market through 2017, when Shoprite collection out to add 46 stores external South Africa in the 12 month to June 2017. Mr. Hayward notes the its outlets—most of which bear its Game and Builders Warehouse brands—average about 3.5 times the sales of a typical Shoprite store.
Some retailers that rushed right into African markets have paid a steep price. Woolworths Holdings Ltd. , one upmarket retailer of groceries and clothing in south Africa, closeup of the door its 3 Nigerian stores in so late 2013, citing high rents, a absence of shopping malls and intense bureaucracy. In 2011, choose n Pay shop Ltd. Entered Mozambique and also Mauritius, however exited both industries two year later, citing unprofitability and differences v its particular franchisees.
More broadly, current sharp fluctuations in afri currencies—a result of the assets crisis—have jolted businesses including retailers, especially due to the fact that loans in plenty of African nations are dollar-denominated. And also inflation, a malady in various economic situations on the continent, has cut into the buying strength of middle-class consumers.
Wal-Mart’s slow however deliberate method to Africa quarter from previous strategies in emerging markets, whereby aggressive expansions struggle hurdles.
Last year, Wal-Mart closed 115 outlets in Latin America, leaving its store count in the an ar at about 4,000. In China, the firm has slowed store growth, and also in June offered its Yihaodian website because that a stake in neighborhood online retailer JD.com Inc.
A five-year U.S. Examination into feasible foreign bribery has dogged Wal-Mart in Mexico; and the probe, i m sorry is concerned store openings, has also pointed to feasible misconduct in Brazil and in India. Wal-Mart, which didn’t respond to requests for discuss its afri strategy, has actually said the is cooperating completely in the miscellaneous investigations. Yet the company’s efforts to enhance compliance have slowed growth in part markets, according to a previous employee familiar with the situation.
Massmart’s Mr. Hayward concedes the the chain’s technique in Africa is partially born the necessity. Sketchy soil registries, sudden alters to regional laws and property owner holding out for a bonanza are just a few of the hindrances to doing business.
“The dominion of thumb is probably around three years from an initial meeting a developer top top a dusty item of floor to opening the stores,” the 51-year-old CEO said. “This is your once-in-a-lifetime payday and also valuations space crazy.”
Massmart was burned a few years back in Zambia when the federal government overhauled its regulations on blame financing, undercutting plans to open several shop in the country. “All the records we signed fell down with that,” Mr. Hayward said.
“Wal-Mart leaves united state alone. They’re not over my shoulder, there aren’t daily phone calls.”— Massmart CEO male Hayward
Despite this holdups, the retailer’s go-slow strategy because that the continent may be bearing fruit. Massmart’s in its entirety sales for the six months to June 26 grew 8.7% indigenous a year previously to 42.3 billion southern African rand ($3.14 billion), when sales exterior of south Africa jumped 23%, good for almost a 10th of the total.
Still, in a sales upgrade last month, the company reported a continued decline in non-South african sales growth throughout the year come Dec. 25. Massmart is scheduled to report that is full-year earnings on Feb. 23.
The plodding speed of store openings raises questions around Wal-Mart’s commitment come its african adventure. Indeed, the critical time the company mentioned Massmart in a quarterly earnings speak to was 2014, when Mr. Hayward’s appointment as CEO was noted.
“Wal-Mart bought lock for their African strategy,
In 2015, Massmart opened a mall-based save under its video game brand in Nairobi, Kenya—the company’s most recent foray right into a brand-new market. “It’s doing OK—the shopping center itself is battling a tiny bit,” Mr. Hayward claimed of the outlet’s an initial year the operation.
Massmart’s supply chain and marketing remain largely independent that Wal-Mart. Yet Mr. Hayward says Massmart is pursuing initiatives where the parent firm can loan expertise, together as digital shopping and “click and also collect” capability in a component of the people where such activity is quiet uncommon.
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“Wal-Mart leaves united state alone. They’re no over mine shoulder, there aren’t daily phone calls, there’s no press to thrive for its very own sake,” Mr. Hayward said. “They check out the Massmart-in-Africa story together a decadeslong story.”
—Sarah Nassauer added to this article.
Write to Alexandra Wexler at alexandra.wexler
Corrections & Amplifications Mexico is part of phibìc America. An previously version the the graphic illustrating Wal-Mart’s with in arising markets incorrectly indicated that Mexico is a main American country. (Feb. 11, 2017)