Cape Town - Massmart is looking to add a fifth division to its portfolio of big box retail chains, which, for the first time, could be started from scratch.
At the presentation of its latest results last week, the retailer said it would consider starting a greenfields operation, but did not specify the most likely retail sector.
Previously, Massmart's growth strategy has tended to be acquisitive rather than internal. However, its attempt last year to acquire an existing stand-alone sports chain was thwarted when competition authorities blocked its takeover of privately owned Moresport, the owner of Sportsmans Warehouse.
The failed bid may have prompted Massmart's decision to consider starting a new division for the first time as it looks to find fresh areas for profit growth after achieving operational efficiency at acquisitions such as Game and Servistar, now rebranded Builders Express.
Already the company's four divisions have nine chains spanning retail general merchandising through the Game brand, warehouse general merchandising (Makro), home improvement (including Builders Warehouse) and non-perishable grocery cash and carry outlets (such as CBW).
New chief executive Grant Pattison made it clear that Massmart would not divert from its high-volume, low-margin cash business strategy, but did not say what growth sector it would enter.
Asked if Massmart would consider moving into the furniture retailing sector given threats to the traditional credit retailing model, Pattison would only note that it had replaced clothing trading space at Game with furniture.
He dismissed as "pure speculation" talk that furniture would become its fifth division.
Middle-income credit furniture retailers JD Group and Ellerine have reported growing sales to customers obtaining credit from third parties as banks and mass market lenders aggressively move into consumer finance.
Analysts said yesterday that while the changes in the furniture sector presented an opportunity for Massmart to lend its more productive retail expertise to furniture, it was difficult to say what retail sector it would move into.
BoE research analyst Barbara Price-Hughes said that as consumers migrated to more competitive lenders, traditional in-house credit was likely to become an increasingly flawed model, creating an opportunity for Massmart.
Quinton Ivan, an investment analyst at Coronation Fund Managers, agreed that Massmart, with its expertise in generating high trading densities, could successfully venture into a stand-alone furniture chain. He said, however, that Massmart would be wary of doing so as it would probably require the retailer to become a significant credit provider.
Ivan thought big box pharmacy chain Dis-Chem would be a "fantastic" acquisition for Massmart, if it was on the market.
Ivan believed Dis-Chem was doing significant volumes, and said it would be a natural fit with Massmart's retail strategy.
Massmart shares fell 20c to R84.30 yesterday. The general retailers sector added 0.3 percent.