The Lewis decentralised structure enables stores managers to be in control of all aspects of the customer interface. This results in Lewis stores being closer to our customers and ensures customer satisfaction.

The branch network of 490 stores across the Lewis, Best Electric and Lifestyle Living chains employs 5 879 people, including sales staff, administrative personnel, branch, regional and divisional management.

The Lewis and Best Electric structure includes 11 divisional general managers (DGM) who are responsible for all store operations and report to the operations director. A DGM has five or six regional controllers reporting in, while the regional controllers in turn have responsibility for six to eight stores each. The DGMs each have an average of 17 years' experience with the Lewis Group and the regional controllers each have an average of 10 years' experience.

Lifestyle Living's 16 stores are spread across three regions, with the regional managers reporting to the operations executive at head office.

The strong sales performance over the past year reflects the benefits of the multi-disciplinary approach, with the branch operations forming a close working relationship with the merchandising, marketing, property development and information technology departments.

An important aspect of operations is the reactivation of settled customers and a promotional campaign has been successful in regaining in excess of 10 000 customers.

The group has created a store culture which is both empowering and entrepreneurial. Store managers are accountable for the entire operation of their branches, including sales and credit collection, and are empowered to make decisions which influence the performance of their stores.

Managers are remunerated in line with this philosophy, earning a basic salary and incentives based on their sales, credit collection and profit performance. Sales staff remuneration is largely commission-based with incentives for achieving performance targets. Credit collection staff also have collection performance incentives.

As more than 80% of the staff are employed in the branch operations, the human resources department is housed in the operations division. The training and recruitment functions are managed on a decentralised basis, with 11 divisional personnel managers providing a support service to operations.

Training and development remains a priority for the group. During 2006 1 827 staff members attended training courses, including 1 468 previously disadvantaged staff.

Lewis strives to be a leader in product knowledge training and has introduced a television broadcast system, Lewis Live, which is a weekly product knowledge training tool. Products are featured weekly and every salesperson throughout the country is required to write a test on these products.

We continually monitor our employee profile to reflect the demographics of the customer base and the communities in which Lewis trades. More than 75% of our staff are from black communities.

Lewis Stores

Best Electric is a specialist electrical appliance and audio-visual retail chain with a similar customer profile to Lewis in the LSM 4 to 7 categories. The chain has grown rapidly since its formation in 1998 and operates out of 72 stores. The Best Electric concept is based on small stores situated in high traffic areas with high trading densities, with an average store size of approximately 150 m².

The model is based on popular branded merchandise fully supported by South African distributors. There is differentiation of product when compared to Lewis with Best Electric leveraging off the group's buying power. No “grey” unsupported merchandise is stocked by Best Electric.

Fourteen new stores were opened during the year and the store base has grown by close to 50% over the past two years. The chain will open approximately 12 new stores during 2007.

Lifestyle Living

* No comparatives were reported in 2005 as Lifestyle Living was acquired during the 2004 financial year.

Lifestyle Living has been repositioned following its acquisition by the group in 2003 and the store location strategy reflects this revised business model. Three new stores were opened while four stores were closed in areas that were not appropriate for the new positioning of the chain. The new-format, mall-based stores opened during the year are performing well.

The Lifestyle chain has the potential to grow significantly in future. New stores are being planned for 2007 with several new sites being identified in areas where a higher level of credit is required.

insurance

Monarch Insurance Company (“Monarch”) is a wholly-owned subsidiary of the group providing customer protection insurance products to credit customers who require insurance on the goods bought on credit for the contract period.

Monarch is governed by a board of directors which includes three executives of Lewis Stores, and two non-executive directors, Robert Shaw and Ray Sanger. The non-executive directors have extensive experience in the short-term insurance and reinsurance industries.

Monarch operates under a restricted short-term insurance licence and is registered with the Financial Services Board. The Short-Term Insurance Act requires Monarch to hold insurance reserves to meet future financial obligations and these funds may only be invested in certain asset classes and within limits set out in the regulations promulgated under the Act.

As Monarch is licensed to operate in South Africa only, there are contracted third-party insurance partners in Botswana, Lesotho, Namibia and Swaziland to enable the group to offer customers in these countries similar insurance products on their credit purchases.

The basic insurance package covers the settlement of the outstanding balance in the event of the death, permanent disability or retrenchment of a customer. The insurance also covers the replacement of goods as a result of any form of accidental loss, such as fire, theft or natural disaster. A further feature of the insurance scheme is that customers automatically qualify for free membership of the Lewis Club.

Monarch utilises the group's existing operational infrastructure to sell insurance products, collect premiums and administer claims.

Monarch reinsures 40% of its insurance risk through Constantia Insurance Company. The investment of the insurance portfolio is outsourced to Sanlam Investment Management who determines the investment and asset allocation strategies in consultation with the Board of Monarch.

customer service

Delivery of superior customer service forms the foundation of the Lewis Group as evidenced in the company pledge. This function is relevant in ensuring that the group is meeting, and where possible exceeding, customer expectations.

While customer loyalty is reflected in the high level of repeat sales, a range of research techniques are applied to assess customer service standards across the group. Customer satisfaction levels averaged 93% in 2006, in line with the level in the previous year.

Mystery shoppers visit all stores across the three chains twice a year. This project is outsourced to an international client satisfaction research house to assess the professionalism of the customers' sales experience, the image of the store, the sales skills and product knowledge of store staff, merchandise presentation and pricing, and a general impression of the visit to the store.

Telephone calling is undertaken each year to all stores to assess the level of professionalism, product knowledge and telephonic sales skills of the staff.

Random courtesy surveys are conducted to evaluate the purchasing experience of new customers. These surveys are done at regular intervals over the account lifecycle to monitor ongoing satisfaction levels of customers.

All reports from the research company are given to the Operations Director for actioning.

Staff are recognised for their outstanding customer service through nomination to the Service Excellence Club. Qualification is based on feedback from customers, reports from mystery shopping research or nomination by senior management for consistently high customer service. Members of this club qualify for attractive incentives, including an annual draw for a motor car.

A toll-free facility which is advertised in stores and on customer statements encourages customers to contact a Customer Care department in the event of any service issue.