Johan Enslin		André Strydom		Neil Timm
General Manager Operations		General Manager Best Electric		Operations Executive Lifestyle
Supported by eleven divisional general managers

Operations

The Group's operating structure has been formulated to support all key strengths and attributes of the business model - convenience, choice, credit, loyalty, customer focus and operational efficiency. The divisional operations are divided according to target markets: Lewis and Best Electric serve customers in the LSM 4 - 7 groups while Lifestyle Living is aimed at LSM 8 - 10 groups.

Lewis sells a wide range of household furniture and electrical appliances, primarily to the LSM 4 - 7 consumer category. Lewis is the single largest furniture brand in South Africa with 400 stores. This enables significant economies of scale to be achieved in marketing and other costs as well as merchandise procurement.

Best Electric is a specialist electrical appliance and audio-visual retail chain targeting consumers in the LSM 4 - 7 groups. Started in 1998, the store base has grown to 58 by year-end. The Best Electric concept is based on small stores with an average size of 160 m² situated in high traffic areas with high trading densities.

The extensive footprint of 458 stores countrywide for Lewis and Best Electric requires a highly efficient operational structure to support the branch network. This structure includes over 5 000 people from sales staff, to branch, regional and divisional management.

A unique feature of the structure is that store managers are accountable for the entire operation of their branches and are empowered to make decisions which will impact on the performance of their branches. They are responsible for both sales and credit collection in the branch, which ensures a balanced approach to these two disciplines.

The Group has instilled an entrepreneurial culture within stores so managers are effectively the heads of their own businesses. Remuneration has been structured to reflect this philosophy, with managers receiving a basic salary and incentives based on their sales, credit collection and profit performance.

Sales staff's remuneration is largely commission based with additional incentives set for maximum performance.

There are 11 Divisional General Managers who are responsible for all aspects of store operations. Each Divisional General Manager has five or six regional controllers reporting to him, with each regional controller being responsible for six to eight stores. The Divisional General Managers report to the General Manager: Operations. The Divisional General Managers have an average of 18 years service, and therefore have a thorough understanding of the Lewis trading environment.

Key to the success of the branch operations is the integrated working relationship with the merchandising and marketing departments, the co-operation with the human resources department to ensure effective recruitment and training practices and the constant liaison with the information technology department on the systems front.

Lifestyle Living was acquired in October 2003 and serves the LSM 8 - 10 market. The integration of niche furniture retailer Lifestyle Living into the Group was succcessfully completed during the year, with all financial, credit and human resources systems being merged onto the Lewis platform.

Although still relatively small in the Lewis Group, the brand is positioned to benefit from the Group's systems capability, reduced costs from economies of scale, logistics capacity and the availability of capital for store expansion. Merchandising has been retained as a separate function to ensure that the Lifestyle Living brand retains its own identity. However, there is a close working relationship with the Group's merchandising and marketing team to extract cost efficiencies where possible.

The store location strategy has been adapted to the revised business model. The new format, mall-based stores opened during the year are performing well.

Insurance

Monarch Insurance Company Limited has a restricted short-term insurance licence and is registered with the Financial Services Board.

Monarch Insurance provides insurance products to credit customers of the Group.

The basic insurance package covers death, permanent disability, retrenchment and the replacement of the goods in the event of accidental loss, fire, theft or disaster.

The Monarch Insurance Board consists of three executives of the Lewis Group, namely Alan Smart, Les Davies and Kenny van Aardt, and two non-executive directors, Robert Shaw and Ray Sanger. The non-executive directors have over 70 years collective experience in the short-term insurance and reinsurance industries.

By utilising the Group infrastructure to sell the insurance products, collect premiums and administer claims, significant economies of scale exist for the Group.

The investment portfolio of Monarch Insurance is managed by Sanlam Investment Management (SIM). The asset allocation and investment strategy is determined by the Boards of Lewis and Monarch Insurance in consultation with SIM.

In terms of compliance with the Short-term Insurance Act, Monarch Insurance is required by legislation to establish certain reserves to meet future obligations and these funds may only be invested in specific asset classes. In addition, the investment strategy adopted by Monarch Insurance restricts higher risk investments.

Monarch Insurance reinsures 40% of its insurance risk with Constantia Insurance Company Limited.

Monarch Insurance is licensed to operate in South Africa and the Group has negotiated arrangements with third-party insurance partners in the neighbouring countries of Botswana, Lesotho, Namibia and Swaziland which makes it possible to offer customers in these territories similar insurance products.

Sharon Röhm

Manager Customer Service

Customer service

Customer service is not only a department, but importantly, it is a philosophy within the Lewis Group which is entrenched in the business model.

The management team is committed to customer service and satisfaction and demand the same level of commitment from staff. The high customer loyalty and level of repeat sales indicates that customers are satisfied with the Lewis experience.

A wide range of stringent methods are applied by the service excellence team to assess customer service standards across the entire Group.

"Mystery shoppers" visit all stores twice a year, with an external research house contracted to assess issues such as the professionalism and presentation of the sales staff, the level of interest in the customer's requirements, product knowledge, the merchandise range and display and a general overview of the visit to the store.

Mystery telephone calling to all stores is performed on a regular basis to determine the level of professionalism, product knowledge and telephonic sales skills of the staff.

Regular surveys are conducted randomly to evaluate the purchasing experience of new customers. Responses show that on average 93% of customers are satisfied with the point-of-sale service and the delivery of goods.

Other techniques applied in assessing customer service are random telephonic surveys, mailings to customers throughout the lifecycle of their account to establish levels of customer satisfaction, customer focus groups as well as qualitative and quantitative market research among customers and potential customers.

A service excellence campaign has been running for many years and is designed to motivate and reward all employees for outstanding customer service. Employees are nominated based on feedback from customers, positive reports from mystery shopping or by senior management for consistent customer service. Nominated staff members are appointed to the Service Excellence Club. Awards are presented to all new members who qualify for attractive incentives.

A call centre at head office handles all customer communications. Customers are encouraged to use the toll-free facility which is advertised both in stores and on customer account statements.

Fleet management

Convenience is one of the strengths of the Group's business model and this is reflected in the timeous delivery of merchandise to customers, with about 90% of deliveries being made within 24 hours of purchase.

In order to create operational efficiency, the Group runs its own fleet of over 900 vehicles which supports the national store network, with each store having dedicated vehicles.

Fleet management and replacement is centrally controlled at head office. New vehicles are purchased from a black economic empowerment (BEE) vehicle dealership.

The fleet maintenance and administration is outsourced to Imperial Fleet Rental which allows the Group to maximise fleet efficiencies and manage costs.