The Massmart CFO details the retailer's plans for a turnaround, boosting online and Africa, and now, Covid-19.
Mohammed Abdool-Samad joined Massmart as the new CFO in August 2019. The position entailed a move from Durban back to Johannesburg to join the retail giant at the toughest point in its twenty year history.
The role offered the challenge of entering into a new industry, moving back into the listed environment, and most importantly the chance to reshape the retailer’s trajectory. Walmart-owned Massmart, which has shed more than 80 percent of its market value since its 51 percent acquisition almost 10 years ago, needs an ambitious turnaround plan.
He understands that the years ahead will not be easy, but rewarding. It is important for the South African economy that they get this right. He has worked on evolving the business model in previous roles: “I enjoy the challenge of turnaround projects. Massmart has strong brands with high market share, but we have made mistakes over the years. There are exciting initiatives ahead. I’ve enjoyed working with the executive team on a new strategy, which we’ve already begun implementing.”
Massmart CEO and Walmart veteran, Mitch Slape, who took office late in 2019, has already unveiled sweeping changes to turn the group’s fortune around. This includes the closure of DionWired stores, removing fresh food from Game stores and reintroducing clothing lines into Game. In January, the retailer announced that it was in talks with unions to close 34 stores, which could result in up to 1,440 jobs lost.
Speaking at the financial results presentation this February – the group reported an overall loss of R1.3 billion for the year to end December 2019 – the CEO estimated that the turnaround journey could take up to three years.
In February Massmart’s four business units (Massdiscounters, Masscash, Masswarehouse and Massbuild) were shrunk into just two units to unlock greater efficiencies and buying power. The one unit is focussed on retail and the other on wholesale business. Walmart’s global strategy is to ensure that the “back end” of operations look alike in terms of systems and logistics, while the “front end” brands remain local.
“We see a massive opportunity in consolidation. The federated model where business units were run fairly independently and competed worked well in the past. Now, with gross margins under pressure, we are working towards a ‘one Massmart’ vision. When I joined six months ago, collaboration between different businesses was uncommon. Now, we’ve opening up sharing within the group,” says Mohammed.
The retail environment, especially for durable goods, is severely constrained and Mohammed sees the impact of economic woes in the daily sales numbers. According to FNB data, 56 percent of middle-income South African consumers spend their entire monthly salary in five days or less after receiving it. Massmart, with its reputation for keen pricing and quality products, will weather these storms. The group’s positioning on providing cash-strapped local customers with ‘everyday low prices’ is very close to Walmart’s stated mission of ‘to save people money so they can live better.’
The online opportunity
E-commerce is a channel that Massmart is taking more seriously. The company’s click and collect strategy is working well for Game, Makro and Builders Warehouse. Massmart began offering online sales some five years ago, but the channel still represents a sliver of total overall sales. In addition, Game has also been hit particularly hard by the migration of wealthier clients to online shopping, particularly at Takealot. But Massmart is well-positioned to challenge Takealot, given that it has massive warehouses and stock that can be delivered immediately.
According Statista, an estimated 1.8 billion people worldwide purchased goods online in 2018, with global e-commerce sales reaching $2.8 trillion. In South Africa, the market for online retail touched R10 billion in 2017, which equates to 1 percent of the total retail market.
“South Africa is still immature when it comes to buying online. However, when ecommerce takes off the growth tends to be exponential. We need to be ready for that by investing in our capabilities, technical skills and software,” he adds.
Cautious African expansion
The Walmart stake in Massmart was heralded as play to gain from Africa’s growing consumer markets. While South African retailers have expanded aggressively, this African expansion hasn’t been without trials. Both Nigeria and Angola, for example, have had currency devaluations, which have highlighted the perils of doing business in frontier markets.
The group is taking a cautious approach regarding African expansion. “South African firms have made the mistake of thinking a plug and play format will be successful. What works in South Africa won’t necessarily work overseas. In reality, the markets are unique with different cultures and preferences. For a retailer, many popular brands in South Africa are not well-known outside our borders.”
While operating in 12 countries outside of South Africa, Massmart’s operations are largely focussed on South Africa. This contrasts with Mohammed’s previous role at Illovo Sugar where 80 percent of the group’s African operations were outside our borders.
Massmart has been providing essential goods during the lockdown through its various businesses, including Makro, Game, Cambridge, Builders and Cash & Carry. “The finance community has been working tirelessly at managing cashflow on a daily basis, especially when sales is significantly lower than normal and the expectation that this is going to be a ‘long game’,” says Mohammed. “No stone is unturned in identifying initiatives to preserve cash during the cycle. The finance community meets daily to discuss and action initiatives to reduce expenses, capex, and optimise working capital.”
Stakeholder management has also been critical for Mohammed during this period. “We have found new and innovative ways of working during the lockdown by embracing the principles of empowerment and accountability more than ever.”
Personally, Mohammed says he is in back to back Zoom meetings, as “the pre-lockdown corridor and coffee chats to resolve issues spontaneously” is now formalised in his diary.
He says: “Bandwidth wars at home with your kids and Zoom etiquette is the new order.”
The business partner CFO
Mohammed sees CFO’s primary role as being a business partner and sounding board to the CEO: “Yes, the CFO is the custodian of the numbers, but more than this, they need to be commercially astute and strategic. This type of CFO delivers more value than the more technical CFO who focusses on the technical accounting aspects. I find that today’s CFO generally spends less time on pure financial reporting and tax issues. Instead more time is dedicated towards strategy, business development, risk management, and operational efficiencies.”
For Mohammed, working for Walmart offers the opportunity to learn the trade from the world’s largest retailer. This includes working alongside the new CEO, who has been with Walmart for almost a quarter of a century. “Mitch has years of experience gained in international markets including Japan, Mexico and India. He has a wealth of Walmart knowledge and networks and is able to connect our local operations with global resources.”
Schooled in commodity markets
Moving from working for commodity producers (Illovo Sugar and Anglo America) into the retail environment has been a refreshing change. Some of lessons learnt from almost two decades in commodities, also ring true for the retail sector. This includes keeping the cost base lean, regardless of the economic times.
“Commodity cycle swings can be dramatic and destructive if you don’t have the right cost base. Commodity players can be ruthlessly efficient when time are tough, but find it difficult to maintain this discipline in the good times.”
In 2011, Mohammed joined Illovo Sugar as Group Finance Director and spent eight years at the firm with operations in six African countries. Illovo Sugar is a wholly-owned subsidiary of Associated British Foods (ABF), diversified international food, ingredients and retail group operating in 48 countries.
As the group finance director, overseeing extensive agricultural and manufacturing operations, he navigated through the challenges of drought effects, low raw sugar prices and currency ructions. In this role, he was instrumental in transforming Illovo from a traditional pure sugar producer into one manufacturing high-value downstream sugar products.
Prior to joining Illovo, he spent a decade in executive finance roles within Anglo American. He is especially proud of overseeing a R7 billion BEE transaction in the coal industry, which took three years to finalise.
Have a vision and get there faster
Mohammed is a CA with a Bachelor of Commerce from the University of KwaZulu-Natal. He completed his articles at Deloitte and then spent four further years as a senior manager in audit, risk and corporate finance.
His advice to younger finance professionals would be to navigate into their preferred lane soonest. He spent several years in auditing, which was not his passion. “I wish I had entered commerce sooner. It is completely possible to be a strong CFO with relevant experience in your thirties, rather than only attaining this goal in your forties.”
Mohammed doesn’t believe in over engineering a career or predicting where you will be in five years’ time. This rigid approach is bound to lead to disappointment. Rather he trusts that future success and happiness depends on how you commit to your current role. “Do what you are passionate about, work at being the best you can be right now. If you do focus on adding value, the opportunities will open up. Success does not come overnight, but when opportunities arise, you must be ready.”
Mohammed believes an empowering leadership style is key to ‘being able to get more done’. He enjoys the strategic side of his position, but spending time on strategy means that he relies on his trusted team to make sure the daily finance function runs smoothly. This requires setting clear objectives, having no expectations gaps and a well-structured performance incentive plan to ensure that priorities are aligned.
He leads a core finance team of 30 people at head office while approximately 1000 employees across the group (including from payroll and the real estate division) indirectly report into finance.
Life beyond work
When not at work, Mahommed spends time with his wife and plays ‘taxi and ATM’ for his three teenage daughters. He and his wife, who holds a number of non-executive positions at leading corporates, are serious runners and focus on getting enough training miles in to compete in marathons each year. To unwind, he reads non-fiction, especially books that cover local corporate scandals and political intrigue. Some of the appeal of these corporate tell-alls, is that he has encountered some of these characters during his illustrious 23 year finance career.