Closure of the Lugogo games store

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End of Game Store in Uganda: The outside maneuvers behind the move

Kampala, Uganda | THE INDEPENDENT | News of the impending closure of the Game Store the largest outlet for all merchandise in Uganda; the Lugogo Mall in Kampala, added more cold wind on an already chilly shopping environment in the country.

The Game Store was the anchor of the Lugogo Mall, which was the number one outlet for Class A in the Ugandan capital. It opened in 2004 with a reported investment of $11 million and has since been seen as proof of international confidence in Uganda’s economy.

The news of its closure has been a drag as it follows the closure of other major overseas stores such as Shoprite, Uchumi, Nakumatt and Tuskys in the past five years.

Their departure, which leaves elite shoppers with limited choice away from smaller national supermarkets, has sometimes been wrongly blamed on a toxic business environment. On further analysis, larger external considerations that are rarely brought into the discussion could be driving the departures.

The game had outlets in about 12 countries in Africa, but it fell on hard times in almost all of them. Game sales from the rest of African stores had fallen 18.6% in rand in the 26 weeks ending June 2021, when talk of closures first surfaced, and 5% in constant currency .

Ongoing currency weaknesses, the COVID-19 crisis, civil unrest in South Africa and, more recently, inflation have been blamed for Game’s poor performance.

Speaking to the media in South Africa in August 2021, Massmart Chief Executive Mitchell Slape revealed that the slowdown in operations was affecting 14 underperforming stores outside of South Africa. The other subsidiaries concerned are Botswana, Ghana, Kenya, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Tanzania and Zambia.

He said a tough business environment for Massmart had made it difficult for businesses to survive and forced them to dump all of their merchandise stores.

“The performance and complexity of running these businesses is something we needed to address frankly. We have started a formal sale process, we are currently in talks with potential buyers to take over these stores,” Slape said.

In August 2021, Massmart was talking about closing 14 stores in Ghana, Nigeria, Uganda, Kenya and Tanzania.

He hoped to return to the black through more focused management and investments in high-yielding and online assets. Slape said the move would result in annual earnings before interest and tax improvement of US$50.24 million.

The group’s chief financial officer, Mohammed Abdool-Samad, said he hoped Game would break even within the next 12 months. This does not appear to have happened, causing the current wave of lockdowns in several African countries.

The Ugandan question

Game’s departure from Uganda was first announced in March 2021 by its parent company, South Africa’s Massmart.

At the time, Massmart said it was reviewing all of its operations in East and West Africa. In Uganda, he said he favored a local business partner to manage his outlets. The reasoning was that a local investor manager would have a better understanding of local market conditions.

It now appears that Massmart failed to find such an investor and instead opted to close the store.

“We have therefore initiated consultations on potential store closures with members of our staff at potentially affected stores,” Neville Hatfield, vice president of merchandise, said in a widely quoted statement.

This new decision has further disturbed the army of approximately 300 Game Store employees who, for more than a year, have lived in fear of finding themselves out of work at any moment.

Hatfield said Massmart is firmly committed to honoring its obligations to its Ugandan staff members, customers and business partners. He promised a transparent consultation process with staff members and their representatives, to agree on next steps.

Walmart’s offer

At the same time, the American owner of Massmart, retail giant Walmart, announced that it wanted to buy out minority shareholders and delist the company from the Johannesburg Stock Exchange.

The US retail giant has signed an agreement to begin buying out the 47% stake in Massmart that it did not already own, the companies said in a joint statement.

Massmart said Walmart offered it $373 million to buy the remaining shares and take the company off the Johannesburg Stock Exchange.

Another report claims to have obtained from New Age Alpha New York an H-factor score of 96.1% for Massmart, indicating that they have a 96.1% probability of not being able to achieve the growth involved. in the course of its action. If you reverse the trend, Masmart has a 3.9% chance of achieving the growth implied by its stock price.

Considering the above metric, it’s clear that Massmart’s current outlook isn’t great. However, the deal would help Walmart restructure Massmart from an operational standpoint.

Walmart’s intention to remove Massmart from the JSE would help it cut costs and increase much-needed investment in the struggling retailer. Given the billions Walmart has already invested, it is not in its best interest to walk away from the table, especially given the success of its competitors in the South African retail market.

On top of that, whether the takeover happens or not, Walmart would likely continue to provide financial support to Massmart. Thus, from his point of view, by taking full control, he will at least fully benefit from a possible reversal scenario. The timing seems opportune due to the weak exchange rate of the rand against the dollar – Walmart would pay around $370 million for the transaction.

But many risks remain and it’s unclear whether Walmart can turn around the struggling retailer, analysts said. Coupled with heightened competition from the introduction of retail giant Amazon, Massmart’s future is only uncertain, an analyst concludes.

Massmart Chairman Kuseni Dlamini said the offer seemed “fair and reasonable”. News of Massmart’s sale prompted a mild reaction, with a 46% increase after the company broke the news.

Analysts and bankers have said that after investing billions in the business, it’s hard for Walmart to turn back now, especially as rivals have shown the South African retail market to be highly rewarding .

“Given the support they (Walmart) have to give Massmart in this process, they probably thought right…why shouldn’t we take advantage of this and let’s go all the hog and take out the rest of the shares,” Sasfin Alec Abraham, a senior wealth management equity analyst, reportedly said.

The offer would allow Walmart to cut costs, invest more capital and turn around Massmart, which has suffered losses and lost market share to larger local rivals.

“Common shareholders are hereby advised that Massmart and Walmart entered into an implementation agreement on August 31, 2022, pursuant to which Walmart has indicated its firm intention to make an offer,” the companies said in the statement.

Both boards believe the proposed transaction would allow Walmart to continue its “overweight” support as a long-term shareholder and enable Massmart shareholders to realize value, they said.

Since buying its stake in 2010, Walmart had tried several strategies to make Massmart a go-to retailer in South Africa, but failed to do so due to competition from strong local rivals such as Shoprite, Woolworths and Pick. No Pay.

“The proposed transaction is a strong reaffirmation of Walmart’s commitment to Massmart and South Africa,” the statement said.

Walmart will buy the shares using its cash reserves and has set a tentative date of Dec. 31 to complete the process, he said, adding that more details will be released on Sept. 23.

Walmart acquired a 51% stake in Massmart in 2010 for $2.3 billion, an investment seen as an outlay to use South Africa as a base to grab a piece of the so-called ‘story’. growth in Africa”.

Since then, however, it has struggled against highly competitive and highly profitable local retailers such as Shoprite and Woolworths and stalled plans to expand across Africa.

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