annual report
2007

store operations

The group continues to focus on extracting operating efficiencies and enhancing productivity across its network of 508 stores in southern Africa.

The operational structure is both empowering and entrepreneurial, ensuring store managers assume accountability for all aspects of the customer interface, including sales and credit collection. This decentralised structure enables branch managers to make decisions which influence the performance of their stores. Managers are remunerated according to this philosophy, earning a basic salary and incentives based on sales, credit collections and profitability. Sales staff are largely commission based and are incentivised for achieving performance targets. Credit collection staff are also rewarded for outperforming collection targets.

Lewis enjoys a high level of loyalty with its customer base, evidenced by a high percentage of sales in the past year being generated from existing customers. This can be attributed to the close interaction between the store staff and our customers. This is a core Lewis competency.

Emphasis on training staff is a fundamental objective of the company and all staff participate in a weekly training exercise which includes Lewis Live, the television-based training tool. This programme features a variety of training modules with the emphasis being on product knowledge for sales staff. Every salesman is evaluated on his knowledge and understanding of this product knowledge training.

Encouraging progress has been made in ensuring the employee profile reflects the demographics of the customer base and the communities in which Lewis trades. Black staff now account for more than 83% (2006: 75%) of the total staff complement, with 58% of the operational management at store level being from previously disadvantaged groups.

LEWIS STORES

Positioning

Lewis is South Africa’s single largest furniture brand with 407 stores, including 44 stores in the neighbouring countries of Botswana, Lesotho, Namibia and Swaziland. The chain sells a range of household furniture, electrical appliances and home electronics to customers in the LSM 4 to 7 categories. Each store carries a basic range of merchandise and store managers then select a further optional range to cater for specific markets and regional differences.

Review of the year

Lewis experienced strong growth in furniture sales which can largely be attributed to the appeal of the merchandise range, the value-for-money offering and rapid delivery times.

During the year Lewis opened eight stores, continuing to expand its presence into townships near major metropolitan areas, including Mamelodi, Moloto and Atteridgeville near Pretoria. Selected stores have been revamped to enhance the shopping experience for customers and to promote selected lines of merchandise. Further stores are planned for the new financial year.

Management team

The management team was strengthened with Mr Rinus Oliphant and Mr Johan Meyer being appointed as operations general managers. They have a combined experience of over 30 years.

BEST ELECTRIC

Positioning

Best Electric is a specialist electrical appliance and audiovisual retail brand which targets a similar customer profile to Lewis in the LSM 4 to 7 groups. Stores are generally situated in high traffic areas with high trading densities.

Review of the year

Merchandise sales were up 23.6% off last year’s high base. On a like-for-like basis the merchandise sales increased by 7.5%, reflecting a slowing of demand for certain electronic goods.

Best Electric offers exclusive branded merchandise which is differentiated from Lewis to create a distinctive electrical goods brand. The branded merchandise is fully supported by local distributors.

The chain opened seven new stores and expanded its national store base to 79. Store siting has focused on shopping malls in townships such as Kathlehong (Germiston) and Atteridgeville (Pretoria). Further stores are planned for 2008.

LIFESTYLE LIVING

Positioning

Lifestyle Living is a niche retailer of stylish and contemporary furniture to consumers in the LSM 8 to 10 market.

Review of the year

The repositioning of Lifestyle Living over the past three years, together with successful merchandising strategies, has resulted in strong growth in merchandise sales and higher gross margins. Credit sales now account for 36.7% of total sales (2006: 35.5%) and have been stimulated by locating stores in more credit-oriented areas.

Four new stores were opened during the year.

BEST BEDDING DIVISION

This new division which offers customers beds and bedroom products on credit is currently being pilot tested. The results so far are encouraging.

insurance

Monarch, a wholly-owned subsidiary of the group, offers insurance products to customers purchasing on credit.

The basic insurance package covers customers for the duration of the contract and includes the settlement of the customers’ outstanding balance to the Lewis Group in the event of death or permanent disability. Other cover includes the replacement of goods as a result of any form of accidental loss, such as fire, theft or a natural disaster and an optional benefit of retrenchment cover is also available. Customers taking out insurance products automatically qualify for free membership of the Lewis Club.

Monarch utilises the group’s existing operational infrastructure to sell the insurance products, collect premiums and administer claims. The company reinsures 40% of its insurance risk through Constantia Insurance Company.

Monarch operates under a restricted short-term insurance licence and is registered with the Financial Services Board. The Short-term Insurance Act requires the company to hold assets to meet future financial obligations. Total insurance assets amount to R660.4 million.

The investment of the insurance portfolio is outsourced to Sanlam Investment Management (“SIM”). Funds may only be invested in specific, conservative asset classes and within prescribed regulatory limits. The investment and asset allocation strategies are determined by SIM in consultation with the Boards of Lewis and Monarch.

Contracted third-party insurance partners in Botswana, Lesotho, Namibia and Swaziland allow the group to offer customers similar insurance products on their credit purchases.

Monarch’s Board of directors includes two non-executive directors, Robert Shaw and Ray Sanger, and three executives of Lewis Stores. Both non-executive directors have extensive experience in the short-term insurance and reinsurance industries.

customer service

A strong customer service ethic pervades the entire group, with extensive resources being applied to monitoring service levels and acknowledging staff for their role in exceeding customer expectations. Management’s commitment to delivering superior customer service is embodied in the company pledge which strives to “place excellent customer service first”.

One of the key indicators that the group is indeed delivering superior service to customers is the high level of customer loyalty and repeat sales.

A range of research tools are used to monitor customer service levels, including mystery shopping, telephonic assessments and courtesy surveys among new customers. All research results are analysed by the Operations division, where shortcomings are addressed and outstanding service is rewarded.

Apart from normal inspections by operational management, independent mystery shoppers visit all stores across Lewis, Best Electric and Lifestyle Living chains twice a year. This technique assesses the professionalism of the sales staff, the store image, the sales skills and product knowledge of store staff, merchandise presentation and pricing, and an overall impression of the customers’ visit to the store.

A random sample of new customers is surveyed each month to evaluate their purchasing experience, with ongoing surveys being done over the account life cycle.

The group has achieved a consistently high level of customer satisfaction in recent years.

A Service Excellence Club motivates and rewards staff for their outstanding customer service. Staff are nominated based on feedback from customers, reports from mystery shopping research or by senior management. Club members qualify for attractive incentives, including an annual draw for a motor car.