Massmart The Reckless Speculation Department
Analyst Shamil Ismail enjoyed his time in the sun last week after speculating that Walmart might be ready to pull the plug on its investment in Massmart in 2018 should the retailer not start turning in a more stellar performance. In part, his view is based on the fact that Walmart has exited underperforming geographies within nine years of the initial investment, pointing to South Korea and Germany as examples, and mentioning the announced closure of 269 stores both in the US and elsewhere. It’s the view of Trade Intelligence, however, that this analysis misses the full picture. For example, a number of recent Walmart store closures were due to format issues - 102 of the closed US stores were smaller format Walmart Express stores, which has not worked for the Walmart supply chain. And while the South American closures have come as a result of economic challenges in the region and a highly competitive market (which will sound familiar to South African retailers), Ismail fails to mention that 60 of the closures are in Brazil and 55 elsewhere in Latin America, making up only a fraction of Walmart’s presence in the region. Ismail also overstates Massmart’s current woes: Massmart is one of the few retailers that are delivering real like for like growth, and achieving returns, by m², higher than those of its competitors.
Comment: And closing underperforming stores is not necessarily a signal of retreat, but a rational move for a successful retailer.