Cash retail chain and new credit rules boost Lewis Group’s bottomline
The acquisition of cash retailer United Furniture Outlets (UFO), along with changes to credit granting regulations, boosted the results for the furniture and appliance retailer Lewis Group, despite a sluggish economy.
The contribution of the UFO chain, which Lewis bought for R320m a year ago, was the main reason merchandise sales increased 22.9% to R3.5bn for the year to end-March 2019.
The takeover of UFO marked a change in Lewis’s strategy, as its traditional businesses are focused on low-income earners. UFO, however, sold goods for cash to middle- and upper-income customers.
Lewis CEO Johan Enslin said aside from the contribution of UFO, a change in credit granting regulations also made it easier for self employed people to buy on credit.
Self-employed shoppers account for 7% of the company’s credit customers.
Enslin said under the regulations, self-employed people were treated as less creditworthy than those with salaries. This however, was not the experience of Lewis, which found that its self-employed credit customers were on the whole less likely to default than those who had salaries.
He said besides making it easier for the self-employed to buy on credit, consumers in general were coming back into its stores, resulting in operating profit for what it called its “traditional retail segment” which excluded its UFO segment, rising 12% for the period.
After the closure of the African Bank-run Ellerines and Beares chains, along with the Pepkor closing 300 furniture stores over the past 10 years, Lewis, with close to 800 stores, is the de facto leader in the furniture and appliance retail sector.
Although the demise of its rivals benefited Lewis, Enslin said the closure of so many stores resulted in sharp markdowns in appliances, which consumers took advantage of. These appliances were usually replaced every three years, and the time had now come for them to be replaced.
He said even though the economy was sluggish, the essential need for appliances such as fridges and stoves meant consumers were more or less forced to replace them. “We don’t sell luxury goods. We sell necessities.”
Although the difficult economy still hung over the sector, there were signs consumers were starting to recover, as they were carrying less debt as a percentage of total income than they were six years ago, Enslin said.
Overall revenue was up 10.4% to R6.4bn and overall operating profit was up 16.8% to R443m. Lewis’s traditional segment contributed profit of R429.4m, UFO contributed R40.5m, while its new chain INspire posted a start-up loss of R26.9m.