Massmart to open 13 new stores in 2016 despite tough conditions

A Massmart warehouse.
A Massmart warehouse.

Cape Town – Massmart said it will open 13 stores in 2016, despite tough economic trading conditions caused by high inflation and low economic growth in South Africa.

Massmart [JSE:MSM] CEO Guy Hayward told investors on Thursday that the new stores are in addition to the seven stores they have opened since 2015, “most reporting very strong sales”.

“We estimate that our stores opened in South Africa since January 2015 have contributed 1 300 permanent and 5 000 temporary or indirect jobs.”

For the first 21 weeks of the 2016 financial year, Massmart's total sales growth was 9% and sales growth 6.7%, with year-to-date sales inflation of 5.4%.

“Despite the challenging trading conditions in our non-food areas, our strong food sales, good margin management and effective expense control should assist in delivering a satisfactory performance for the six months to June 2016.”

Food inflation at record high

Referring to last week's SA Reserve Bank Monetary Policy Committee meeting, where the repo rate was kept unchanged at 7%, Hayward noted that the short- and medium-term outlook for the SA economy remains muted, uncertain and likely volatile.

“Reported CPI for April 2016 included a food inflation component of 11.3%, which is a five-year high,” he said. “This corroborates with our expectations of drought-induced food inflation accelerating, likely only abating in the fourth quarter of this year or the first quarter of 2017. 

“Price inflation for imported durable product is now expected to rise, as retailers and suppliers have sold out of product originally purchased or hedged prior to the December 2015 currency weakness,” he said.

“The South African consumer economy is in a classic defensive cycle with rising inflation, including food, leading to higher interest rates which, in turn, both constrain consumers' discretionary spending.”  

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