In seeking to find a buyer, Game failed and opted to close

It is difficult to put a finger on where Game failed. Of course, after almost 20 years in the market, one would have expected that Massmart, which operates Game in Kampala, would have made enough markup, consolidated gains and perhaps expanded product lines. 

However, this has not happened. In fact, the plan, which had been mooted in March last year, had been to find a buyer, but from the look of things, this has failed.  Massmart will instead close its store. 

Since 2004, Game has been operating a single store in Lugogo, Kampala.  But, until last year, it had seemed as the only solid foreign retail store at a time when the retail space was going through a lot of headwinds.   

Therefore, when it announced that it would review its operations in March, many Ugandans were caught off-guard.  

In fact the scope of the review remained unknown until March last year when investors were told, through a notice, that Massmart was considering disposing of at least 64 stores, some of which were in East and West Africa. 

In subsequent months, the plan became clearer and in September Ms Michelle Kemp, the Game RSA JHB senior manager communications - marketing, told Monitor that in March 2021, Massmart had started a project in which it sought to “review the performance of our store(s) in East and West Africa” to understand how best they  would be helped to ensure profitability. 

Perhaps, she noted, Massmart had also been of the considered view that the performance of some stores in the selected region would improve under management of investors and entrepreneurs who had a better understanding of local and or regional market conditions. 

“The review project has, therefore, and continues to involve, among other things, identifying and meeting interested local and regional investors, and entrepreneurs who could be better able to ensure sustainable profitability of the affected stores,” Ms Kemp said then. 

Therefore, it is not clear what the review returned in regard to Massmart’s operations in Uganda since the retail chain has indicated it will, at a date yet to be stated, entirely close its operations without the option of selling. 

“… following a review of our Game store portfolio in East and West Africa, we were exploring the idea that store performance might improve under the management of investors and entrepreneurs with a better understanding of local market conditions. As a result, Massmart ...  initiated a process over a 12-month period to investigate, as a preferred option, the opportunity to sell our store in Uganda to local investors. Unfortunately, this initiative did not yield meaningful results,” Mr Neville Hatfield, the Game vice president of merchandise, said in a statement released on Tuesday evening. 

Thus, he further noted, the only possible “way forward is now to consider closing [our] Game store in Uganda and we have, therefore, initiated potential store closure consultations ...” 

Beyond the statement, it is perhaps important to examine Massmart’s failure to find a buyer or an investor, since some retail stores such as Shoprite, which, just like Massmart, divested its operations in Uganda last year, found an investor to take over its operations. 

Was it an issue of failing to get an offer that lived up to Massmart’s billing or just failure to find an investor that shared its aspirations?  

Monitor put these and more questions to Mr Hatfield but we could not get sufficient answers. 

Instead, Ms Gia Costella, an account director at Atmosphere, who indicated that she handles public relations and communications for Game stores in South Africa, said in an email that Mr Hatfield could not comment further “since this is a potential closure,” noting that “no further information will be provided until the outcome of the consultations are clear”.

It is not clear when the consultations will be concluded.  

Game store is a high value shopping outlet that on the face of it is sweet business with handsome returns. 

However, if Massmart failed to find a suitable investor, thus opting to close, then the failure could be speaking to different market fundamentals. 

Was the offer too high? 

We sought to understand how much Massmart had expected to recoup from its store in Lugogo but no such details were availed. 

However, sources privy to the discussions, who requested anonymity to speak freely, said the search for a local or regional investor was largely hit by market fundamentals that were worsened by effects of Covid-19, which had forced a decline in mergers and acquisitions in Uganda and East Africa.

Previously,  Monitor had engaged experts both within Uganda and Kenya, who had suggested a fair market value for all Massmart East African operations but Game management in Kampala disputed it, saying it could have been a ploy to influence the review and subsequent disposal offers.  

Massmart, which is Africa’s third-largest distributor of consumer goods and one of the biggest retailers of general merchandise, liquor, home improvement equipment and supplies and wholesaler of basic foods, operates one store in Uganda, three in Kenya and one in Tanzania.

During the period ended August 14, the Massmart Group reported total sales of R52.8b ($157.6m), representing an increase of 2.9 percent compared to the same period last year. 

Experts that Monitor engaged suggested that perhaps the incentives for a takeover and market conditions were not sufficient. 

For instance, Mr Francis Gimara, the head of Africa Law Practice East Africa, a legal and consulting firm and former Uganda Law Society president, said that whereas there are very few local investors who can raise capital to buy a store like Game, the time could also have been wrong. 

“… there are very few local investors in Uganda who have access to the capital that would be sufficient to buy such a store. More so, the timing is simply not in favour of such a capital intensive purchase,” he said in reference to Massmart’s intention to sell the store to local or regional investors. 

Beyond this, Mr Gimara said, the low purchasing power within the economy could have been a factor given that “retail businesses thrive on high purchasing power”, where “people are willing and have the means to spend on purchases”. 

Similarly, Mr Fred Muwema, the managing partner at Muwema & Co Advocates and Solicitors, said for an outright acquisition to happen, there could have been considerations, which, if someone is to put capital in such a business, must match returns and the incentives.    

“I may not know the specifics why Massmart is taking that side. But as somebody who knows the Ugandan landscape, I think the middle income class is shrinking and this happened after the lockdown and Covid-19,” he said. 

Why Game could have failed to find a buyer 

Francis Gimara, the Head of Africa Law Practice East Africa and former Uganda Law Society president 

Massmart hoped to sell their Game store in Uganda to local investors. 

From an outsider’s point of view, there are very few local investors in Uganda who have access to the capital that would be sufficient to buy such a store. 

More so, the timing is simply not in favour of such a capital intensive purchase given the recent economic shutdowns in 2020 and current inflation challenges coupled with the inability to service current facilities. 

Many investors are not in a position to buy.

I also think that the low purchasing power within the economy is a factor. 

Retail businesses thrive on a high purchasing power. People must be willing and have the means to spend on purchasing products from such stores. 

We still have to build a middle class that has a high purchasing power. 

Lastly, I think that Covid-19 migrated a lot of purchasers to online platforms. 

People are increasingly purchasing items online and the era of big stores may be coming to an end. Acquisitions for such stores are going to be difficult going forward. This is a global trend. 

Mr Fred Muwema, managing partner at Muwema & Co Advocates and Solicitors

If you want an outright acquisition, there are considerations. If someone is going to put his capital in such as business, its incentives and return must be big. I don’t know the dynamics? Is the middle class that is targeted by Game Stores shrinking? Is the purchasing power shrinking? Is there competition? Is the taxation regime hostile? All these are the same considerations for an acquisition.

I may not know the specifics why Massmart is taking that side. But as somebody who know the Ugandan landscape, I think the middle income class is shrinking and this happened after lockdowns and Covid-19.

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