Walmart has hit the ground running following its purchase of a controlling stake in SA retail giant Massmart. Sunday newspapers carried glossy Walmart-Massmart advertisements promising discounted prices to consumers and sending a strong message to competitors that the US company means business.
But will its entry into SA retail shake up the computer retail market and take the fight to market leader Incredible Connection, owned by JSE-listed JD Group?
Chris Gilmour, investment analyst at Absa, says Walmart’s presence in SA is “going to revolutionise most retail”. He predicts that within two years, “SA consumers are going to see a completely different landscape”.
Gilmour says he travels abroad frequently and is “gobsmacked” by the disparities between the costs of goods in places like the UK and those same goods in SA. “We should be quite a lot cheaper than we are due to the reductions in import duties in recent years.”
Walmart, he says, is the biggest importer of Samsung products worldwide. “It has immense buying power. Will that mean lower prices? I suspect so.”
Gilmour cites the current offer of a Samsung 32-inch LCD TV by way of example. “It’s advertised at R3 500, down from R4 800. That’s a big drop.”
However, because of SA’s “embedded cost structure”, Gilmour is not sure that Walmart’s price reductions will be as keenly felt in IT retail as it will be in food and fast-moving consumer goods.
“Being at the tip of Africa, there are logistical factors we have to be aware of,” he says. “It’s trickier to get items to SA – things have to come via ocean or air because they can’t come in by road or rail. Then they have to come inland by road or rail. Walmart will definitely bring its logistical abilities to the fore to combat this.”
In terms of the potential effect on local IT retailers, Gilmour says companies like Incredible Connection have downplayed Walmart’s entry into the market. “Incredible is part of the JD Group. European-based furniture retailer Steinhoff International has a 22% stake in JD and recently bought France’s second-largest furniture retailer, Conforama.”
Gilmour says Steinhoff has “huge critical mass” as an integrated household goods retailer and this gives JD Group “massive buying power by association”.
JD Group CEO Grattan Kirk declines to comment for this article, saying it’s too early to tell what effect Walmart’s entry into SA will have. Incredible Connection CEO Dave Miller is travelling abroad this week and is unavailable for comment.
Gilmour points out that Game and Makro, both owned by Massmart, are not necessarily the first stop for those looking to buy technology goods. But he says that may change now. “Walmart in the US is not just about being the cheapest. It’s about in-store service and an incredibly wide range of products. The question is: will Walmart replicate that model in Games and Makros? I suspect so.”
He says Game stores are a destination store for people who want “perceived low value”. He adds that although Game isn’t necessarily the cheapest option, it is often seen as such. Walmart is clearly keen to get consumers into stores and convince them to keep coming back. He says running a 10-week promotion, as Walmart and Massmart are doing, is an aggressive way to start doing just that.
Massmart already owns a technology retailer in the form of Dion Wired, which could form a cornerstone of any strategy by Walmart to compete aggressively in IT retail in SA.
Kim Reid, CEO of online retailer Takealot.com (formerly Take2), says Walmart’s entry into the SA technology retail market is inevitably going to drive prices down, but he says Walmart’s ability to reduce prices is “probably going to come down to its suppliers, so its ability to change prices may be stilted at first”.
Reid says that competitors will have to keep an eye on Walmart’s prices and that overall “lower prices are always good for consumers, and so is more competition in the market”.
“Walmart will doubtless have online channels in due course,” says Reid. “The online space won’t be affected in the short term, but in the long term it almost certainly will be, and online retailers like us have to remain competitive with retail outlets, so you might see online pricing having to be revised to remain competitive, too.” — Craig Wilson, TechCentral