![Lewis Group Ltd [logo]](../i/logo_lewis.gif "Lewis Group Ltd"){kind=logo}
The group’s customer-centric business model is reflected in the operational structure which services:
Stores are accountable for all aspects of the customer relationship, including sales and credit collection. This decentralised structure empowers store managers to make decisions which influence the performance of their stores, as well as engendering customer loyalty by building up relationships over the lifecycle of a contract, as evidenced by a high percentage of sales in the past year being generated from existing customers.
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.
Training is an ongoing priority for the group, particularly in the area of product knowledge. Lewis Live, a weekly training programme broadcast on the in-house television system, features two products each week and all sales people are tested on their knowledge of these products. Since inception, more than 100 programmes have been broadcast through Lewis Live and the group is currently seeking accreditation for these programmes from SAQA/SETA. Currently about 50 training programmes are being produced per annum for broadcast. Lewis Live was extended to Best Electric stores during the year. The feedback from staff has been extremely positive.
The group is committed to ensuring that its employee profile is representative of the customer base it serves and the communities in which Lewis trades. Black staff now account for 85% (2007: 83%) of the total staff complement, with 90% of store staff and 56% of store management being from previously disadvantaged groups.
Delivering outstanding customer service is paramount to the group’s success and the customer satisfaction level recorded over the past year has improved to a gratifying 98% of customers surveyed.
Management is committed to continually improving service levels, with resources being allocated to both formal research among customers and to recognising staff for providing superior service.
| 2008 | % | 2007 | ||
| Change | ||||
| Revenue | 2 141.0 | 4.7% | 2 044.9 | |
| Cost of sales | (1 272.1) | (1 194.0) | ||
| Trading profit | 868.9 | 850.9 | ||
| Net operating costs | (561.6) | 6.1% | (529.2) | |
| Operating profit | 307.3 | 321.7 | ||
| Operating margin | 14.4% | 15.7% |
| revenue | merchandise sales |
 |
 |
The retail segment encompasses the sale of merchandise and ancillary services such as delivery and maintenance contracts.
Revenue increased by 4.7% with merchandise sales up by 4.5%. Net operating margin declined from 15.7% in 2007 to 14.4% as a consequence of difficult trading conditions. Operating costs reflected a 6.1% increase.
The bulk of the group’s retail revenue is generated by the Lewis chain. Best Electric’s contribution has increased over the years due to its store expansion programme. The Lifestyle Living chain still remains a modest contributor.
Detailed analysis of each brand’s performance is provided below.
 |
From left to right: Johan Meyer, Neil Timm, Johan Enslin, Rinus Olifant, Andre Strydom |
|
| Lewis |  |
 |
|
| Lewis is South Africa’s single largest furniture brand with 417 stores, including 45 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. | |||
revenue: Lewis |
merchandise sales: Lewis |
 |
 |
| Lewis | 2008 | 2007 | ||
| Total revenue, including risk and | ||||
| financial services revenue | Rm | 3 031.1 | 2 812.9 | |
| Total revenue growth | % | 7.8 | 13.0 | |
| Merchandise sales | Rm | 1 542.5 | 1 481.8 | |
| Merchandise sales growth | % | 4.1 | 12.4 | |
| Comparable store merchandise sales | ||||
| growth | % | 1.8 | 10.9 | |
| New stores opened during year | 11 | 11 | ||
| Number of stores | 417 | 407 | ||
| Total trading space | m2 | 198 282 | 194 395 | |
| Annual revenue per m2 | R’000 | 15.3 | 14.5 | |
| Credit sales | % | 70.8 | 72.4 |
| Best Electric |  |
 |
|
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. 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. Stores are generally situated in high traffic areas with high trading densities. |
|||
revenue: Best Electric |
merchandise sales: Best Electric |
 |
 |
| Best Electric | 2008 | 2007 | ||
| Total revenue, including risk and | ||||
| financial services revenue | Rm | 416.3 | 372.0 | |
| Total revenue growth | % | 11.9 | 26.0 | |
| Merchandise sales | Rm | 218.2 | 203.1 | |
| Merchandise sales growth | % | 7.5 | 23.6 | |
| Comparable store merchandise sales growth | % | (1.1) | 7.5 | |
| New stores opened during year | 8 | 7 | ||
| Number of stores | 87 | 79 | ||
| Total trading space | m2 | 12 686 | 11 789 | |
| Annual revenue per m2 | R’000 | 32.8 | 31.6 | |
| Credit sales | % | 63.4 | 66.3 |
| Lifestyle Living |  |
 |
|
|
Lifestyle Living is a niche retailer of stylish and contemporary furniture to consumers in the LSM 8 to 10 market. |
|||
revenue: Lifestyle Living |
merchandise sales: Lifestyle Living |
 |
 |
| Lifestyle Living | 2008 | 2007 | ||
| Total revenue, including risk and | ||||
| financial services revenue | Rm | 149.0 | 136.6 | |
| Total revenue growth | % | 9.1 | 44.0 | |
| Merchandise sales | Rm | 129.0 | 122.9 | |
| Merchandise sales growth | % | 5.0 | 43.9 | |
| Comparable store merchandise sales | ||||
| growth | % | (9.4) | 23.7 | |
| New stores opened during year | 3 | 4 | ||
| Number of stores | 21 | 19 | ||
| Total trading space | m2 | 9 268 | 8 371 | |
| Annual revenue per m2 | R’000 | 16.1 | 15.1 | |
| Credit sales | % | 26.6 | 36.7 |
| 2008 | % | 2007 | ||
| Change | ||||
| Revenue | 891.1 | 9.5% | 813.9 | |
| Debtors costs | (190.4) | 28.7% | (147.9) | |
| Other operating costs* | (253.0) | (18.7%) | (311.2) | |
| Operating profit | 447.7 | 354.8 | ||
| Operating margin | 50.2% | 43.6% |
| * |
Operating costs benefited from an additional recovery of costs on an arm’s length basis from risk services during the year. |
Financial services covers the management and collection of the debtors book. Revenue earned includes finance charges, initiation and service fees charged on customer accounts.
Financial services revenue increased by 9.5%. This was mainly the result of initiation fees and monthly service fees introduced with the implementation of the National Credit Act (“NCA”). Finance charges grew at a modest rate of 2.3% as a result of the requirement of the NCA that finance charges cannot be levied on insurance premiums.
Debtors costs increased by 28.7% and operating margins increased from 43.6% to 50.2%.
Full details of the division’s main activities has been set out in the Credit Report.
Risk services (Insurance) |
 |
| 2008 | % | 2007 | ||
| Change | ||||
| Revenue | 564.3 | 21.4% | 464.7 | |
| Operating costs* | (388.9) | 38.3% | (281.3) | |
| Operating profit | 175.4 | 183.4 | ||
| Operating margin | 31.1% | 39.5% | ||
| * See Financial services | ||||
Risk services covers the activities of the group’s insurer, Monarch Insurance Company Limited (“Monarch”).
Revenue has increased by 21.4% due to the earn-out of premiums raised during prior buoyant trading periods and an adjustment to the insurance fee structure.
Operating costs covers policy administration, collection and accounting for premiums. The segment leverages off the group’s existing infrastructure. The operating margin declined from 39.5% to 31.1% in 2008.
Monarch
Customers purchasing goods on credit are required to have insurance cover for the duration of the contract. In the event of a customer not having such cover, Monarch offers a range of insurance products.
The basic insurance package covers customers for the duration of their contracts and includes the settlement of the customers’ outstanding debt in the event of death or permanent disability. Other insurance products cover the replacement of goods as a result of any form of accidental loss, such as fire, theft or a natural disaster. A retrenchment cover benefit is also available. Customers taking out insurance products through Monarch qualify for free membership of the Lewis Club.
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 R664.9 million at year-end.
The investment of the insurance portfolio is outsourced to Sanlam Investment Management (“SIM”). The investment and asset allocation strategies are determined by SIM in consultation with the boards of Lewis and Monarch. Funds may only be invested in specific, conservative asset classes and within prescribed regulatory limits.
Contracted third-party insurance partners in Botswana, Lesotho, Namibia and Swaziland allow the group to offer customers similar insurance products on their credit purchases.