merchandising and marketing

merchandising

Enhanced product sourcing has further differentiated the Lewis merchandise offering over the past year and this has contributed to increased turnover and higher margins for the group.

A core merchandising strategy at Lewis is the formation of strategic partnership relationships with suppliers which ensures unique design, exclusivity of high-quality products and potentially higher margins. The merchandise team works closely with local and international manufacturers to achieve these objectives.

Owing to the extensive range offered by Lewis, products are sourced from a diverse range of suppliers, with no single manufacturer producing more than 10% of the total purchases.

The merchandise strategy, which has been successful in the sourcing of local merchandise, has now been further extended to the group's import programme. A relationship was formed during the year with a Hong Kong supply chain specialist which will ensure Lewis's exclusive access to several large factories in the Far East. The group imports 13.7% of its total purchases directly.

As the largest furniture retail brand in South Africa, Lewis can guarantee large volume orders to suppliers which enhances price negotiations. Quality control is of paramount importance to the company. We take steps to ensure that a consistently high standard of merchandise is received in our stores.

Our customers are known to be extremely brand conscious. Exclusive electrical and audio-visual products have been sourced from leading brand manufacturers. Lewis and Best Electric's brand strategy in dealing with household electronic goods is to stock only well-known branded goods with extensive local service support. Consequently, the group does not subscribe to grey market or private label imports.

A benefit of being part of the group is that Lifestyle Living has been able to start sourcing product directly offshore, and with this has come innovation which appeals to the younger, more affluent customer base of the brand. The import programme has also improved margins.

There has been continued deflation in the electronic goods sector being driven mainly by improvements in technology. Sales of electronic goods increased by 20.6% in value and 29.4% in volume.

The Lewis distribution model is based on merchandise being delivered directly by suppliers to stores which both increases efficiency and limits the need for costly distribution centres and warehouses. Stores are responsible for their own deliveries to customers, with an estimated 90% of deliveries being made within 24 hours of the sale.

The merchandise team has been further strengthened through the recruitment of additional resources which will enable the brands to maintain a single-minded focus on merchandise offerings.

marketing

Marketing has a dual role in supporting the Lewis Group's business strategy: retaining the loyalty of the current customer base as a means of generating further business and creating brand awareness to attract new business to build market share.

Lewis enjoys a high level of loyalty from its customer base of over 680 000 and in the year under review more than half of the sales were generated from existing customers. A “re-serve” programme identifies the suitability of customers for further credit offers based on their payment behaviour and current debt obligations. Once the programme has assessed the creditworthiness and identified re-servable customers, marketing promotions are targeted at customers to stimulate further sales. The integration of these marketing promotions to the store systems ensures that there is follow through on the offers by sales staff.

Brochures continue to be the major form of advertising, with all current and recently settled customers receiving a monthly brochure mailing. Brochures are distributed by “knock and drop” which continues to be the most used mechanism for distributing brochures. Brochures are also distributed through regional and local press as well as selected magazines.

The group has regular local promotions in store which take various forms and are directed at regaining settled and retaining existing customers.

Co-operative promotions with non-competing retail partners are specifically designed to attract new customers. These campaigns have proven to be successful and will be expanded in the coming year.

Television is used to build the brand and attract new customers. Brand recognition of Lewis's television advertising reached 72% for the year, substantially above prior year levels.

Overall brand awareness remains well above the industry norm after showing strong growth in recent years. Independent industry research by Adtrack shows that Lewis's brand awareness increased from 40% in 2001 to 75% in 2003, and has remained at this high level for the past two years.

Lewis maintained its second place in weighted brand awareness among furniture retailers in the 2005 Markinor report. Lewis was also ranked second in terms of brand relationship and customer loyalty.

Our in-house advertising studio has the expertise to plan, design and produce most aspects of the marketing media. The focus of our in-house advertising studio ensures the most flexible and cost-effective production and the fastest possible distribution of advertising material to the stores. A leading advertising agency has been engaged to assist the in-house studio with specialist communication services and creative input.

The Lewis Club

The Lewis Club is a customer loyalty programme in which membership is free and automatic to any customer taking any insurance product when purchasing merchandise at Lewis. The Lewis Club has a high level of acceptance.

Lewis Club members receive a monthly magazine, The Club, which includes special offers, discount coupons and regular competitions. The editorial content focuses on general interest and topical lifestyle issues relevant to the Lewis customer profile. Club members can also apply for educational bursaries worth R2 million and have free access to 24-hour legal, medical and HIV/AIDS advice lines. Members also participate in a monthly competition for prizes totalling R300 000.