Metcash Trading Africa will close almost half its stores in South Africa as part of a restructuring plan that it hopes will put it on a firmer footing, and enable it to grow its new retail format.
Metcash chief executive Peter Dodson said yesterday that the restructuring plan was aimed at getting rid of whatever was not performing into focus on the core business. “From there we will grow,” Dodson said.
On Saturday 56 stores will close, including Metro Cash & Carry and Trade Centre outlets. After closing some stores last year, the group has 115 stores in South Africa. It plans to retrench 1 049 workers.
Later this year the company intends to open a new range of hybrid stores that will combine retail and wholesale goods.
Dodson said the company was already looking at a number of sites. The Metro Cash & Carry brand would be retained, but not Trade Centre.
He added that the restructuring would ensure the group’s ongoing profitability and sustainability and safeguard jobs in the long run. For this reason, “we believe it is the most responsible route to take”.
The group’s African operations, which include 16 stores in Namibia and 102 stores in Malawi, were healthy, he said. The group sold its Zimbabwean operations last year.
Syd Vianello, an analyst at Nedbank Capital, said the restructuring of Metcash was about the long-term terminal decline of the cash and carry model. “Ultimately if the category is in decline then the market players have to adjust to the reduced size of the category.”
In a situation where big retail chains were eating into a market and a sector was in decline, the weakest link in the chain went first, which in this case was Metcash. “It is heavily laden with debt, it has lost market share and the category has shrunk,” he said.
Competitor Masscash, a division of Massmart, was in a far stronger position as it was backed by a strong parent and still benefited from discounts and rebates due to its collective grocery buying power for Makro and its retail stores such as Cambridge. Even so, Masscash itself reported lower profits in the past six months.
Vianello said Metcash’s hybrid model could work as it had been very successful when Dodson introduced it at Independent Cash & Carry, which he previously headed.
But the burning question was whether Metcash had the money to implement its hybrid store plan. “One can draw a reasonable conclusion that the company has cash flow problems,” Vianello said. Closing outlets would be costly as leases had to be paid out and retrenchment packages covered.
If store closures did not release cash, it meant the only other option was another cash injection from major shareholders Nedbank and Investec.
Chris Gilmour, an equity analyst at Absa Investments, said there was a world of difference between rationalising to cut costs and a radical plan of closing so many stores.
The closure of so many stores and the reopening of new outlets “is a bold move. I hope it’s going to work”. The Metcash brand had been around for decades and had huge brand equity.
Metcash’s management is still consulting staff and unions on the store closures.
The SA Commercial, Catering and Allied Workers Union (Saccawu) did not respond to requests for comment on the plan yesterday.
Previously Lee Modiga of the collective bargaining unit at Saccawu said that last year the group had closed 13 stores resulting in the loss of 500 jobs.
The restructuring includes the sale of Metcash’s franchise division to the Shoprite group, which was announced last month. - Business Report