Lewis Group is very much a part of the retail scene in southern Africa, having been around for all of 76 years; but its new and dynamic CEO Johan Enslin is determined that the group will make an even bigger impact over the next three years, as John O’Hanlon reports.
Lewis Group first hit the South African retail scene back in 1934 when it opened its original store at Woodstock, Cape Town. Since then it has expanded to become one of the country’s most successful retailers, with a network of 548 stores; and in 2004 the group was floated on the Johannesburg Stock Exchange. South Africans can buytheir household furniture, electrical appliances and home electronics products in every metropolitan centre in the country as well as many rural areas.
On top of this commanding presence in the home market, Lewis Group has 49 stores in the neighbouring countries of Botswana, Lesotho, Namibia and Swaziland. Lewis is southern Africa’s single largest retail furniture brand and the group has a customer base of close to 700,000.
The mainstay of Lewis Group’s business is furniture, which accounts for 82 per cent of its revenues. Lewis, the largest furniture brand with 427 stores, sells a wide range of household furniture, electrical appliances and home electronics to customers in the LSM (living standards measure) 4 to 7 categories. Lifestyle Living, which was acquired by the group in 2003 to focus on higher income customers, accounts for just six per cent of merchandise sales.
Perhaps the greatest opportunity for organic growth lies in the fast developing consumer electronics markets, catered for by the Best Home and Electric stores, which in 2009 still only accounted for 12 per cent of group sales.Best Electric, as it’s known for short, has 88 branches and targets the same demographic as Lewis with specialist electrical and audiovisual products.
The group business model relies on high value sales, which are typically supported by terms. Credit sales are supported by the group’s financial services arm, Monarch Insurance, which provides short-term insurance to the group’s credit customers.
Despite the downturn, Lewis Group’s sales actually increased by eight per cent in the year to March 2010. Merchandise sales grew by 6.5 per cent to R2.1 billion, to the satisfaction of chief executive Johan Enslin. “Sales of the higher margin furniture and appliance category increased by 8.5 per cent as our merchandise strategy of sourcing exclusive and differentiated furniture ranges continued to benefit the group,” he said.
During the last financial year the group opened 10 new furniture outlets under the Lewis banner and six Best Home and Electric branches, a confident move in a difficult retail market. Enslin’s confidence is tempered with realism: “We are seeing the signs of improved trading conditions and more optimism on the part of our customers; all the same, our trading environment will remain challenging as long as the country is emerging from this recession.” Naturally enough, he is hoping unemployment can be kept in check. Job creation is still the key to stimulating economic growth among the Lewis target market, he believes.
With so much uncertainty around, you might not think this a good time to enter a really aggressive expansion programme, but that is just what the Lewis Group board is planning. The company announced in May that it would open up to 45 new stores in the current financial year and continue to expand at the same rate over the next three years. This will see 150 new outlets by 2013, bringing the total number to around 700, some of them in Lesotho, Swaziland and Namibia, where the group has stores.
This is not as risky a strategy as it may seem at first sight: Enslin, who was appointed to the top job in October last year, knows Lewis’s customers better than anyone, having started as a salesman back in 1993. The Lewis and Best Home and Electric business model has been proven over many years, he says, and if the right locations are selected, the investment involved will be secure.
The Lifestyle Living stores, which are described as a niche furnishing business aimed at the highest earners in the LSM 8 to 10 bracket, are the only part of the business that has been underperforming, showing a decline in turnover last year. “We have been rethinking this business, and are going to launch a completely new trading brand called My Home, which will focus onconsumers in the LSM 7 to 8 bracket. We are going to convert 13 of the 20 existing Lifestyle Living stores to My Home, bring the business model a lot closer to the tried and tested Lewis approach, and in particular make fuller use of our group credit infrastructure.”
The plan, he adds, is to differentiate the merchandise in these stores by continuing to offer exclusive ranges and attracting the type of customer who would use in-store credit facilities. It is worth pointing out that 70 per cent of the furniture that the Lewis Group sells can’t be bought anywhere else.
South Africahas been to some extent cushioned from the worst impact of the recession, despite what Enslin says about employment. It is certainly no Greece, and confidence in the South African economy survived longer and revived faster than in the majority of the world’s other large industrial nations. The morale of the entire nation has been boosted by the excitement generated by the World Cup and the associated investment in infrastructure. The roads are better and telecommunications have improved with the addition of international internet pipes. None of this may be said to have a direct impact on the upmarket retail sector represented by Lewis, but its indirect and long-term effect on national prosperity has certainly helped to keep the sector buoyant and should be seen as a backdrop to the store expansion programme.
To give an idea of the innovative approach that Lewis Group is adopting, it is looking afresh at each retail outlet. In one exciting recent development, Lewis has opened a number of experimental stores which are half the size of the normal outlets. Driven mainly through automated servicing, these have achieved sales virtually to the same level as the larger sized stores, says Enslin. “We are planning to roll this format out as part of our ongoing growth programme—it’s not unique in the world but it is a new and efficient way of doing furniture business in South Africa.”
