operational review: merchandising & marketing

Merchandise innovation remains a competitive advantage for Lewis and the group has continued to focus on driving sales through exclusive and differentiated product lines.

Merchandising

Lewis has created a distinctive merchandise range, with new designs, manufacturing techniques, fashion trends, alternate wood and other materials being sourced locally and internationally to offer customers attractive and exclusive merchandise at affordable prices.

A key merchandising objective is to grow the sales contribution from the higher margin furniture category. The success in sourcing imported and local product has resulted in furniture growing to 53% of sales (2008: 52%). The introduction of the electronic merchandise catalogue has also increased the number of furniture lines available to stores.

Appliances (27% of sales) increased sales by 3.8% while the more discretionary sound and vision merchandise (20% of sales) slowed by 7%.

The group has ensured that margin is not sacrificed in pursuing top-line sales growth. After adjusting for foreign exchange movements the gross margin has remained relatively constant.

Product price inflation averaged 5% for the year, lower than was originally anticipated. Declining oil prices, recessionary pressures, cost of raw materials and the reintroduction of government export subsidies in certain markets have limited price increases.

Products are sourced from a diverse range of suppliers domestically and offshore. Over the past year direct imports accounted for 23.7% of the group's total purchases.

Merchandise is sourced from suppliers that can offer exclusivity and product differentiation. Products are also sourced from regional manufacturers which improves inventory levels in stores, reduces delivery lead times and lowers costs.

As part of the group’s commitment to quality, all products are supported by local after-sales service. Quality control on imports is supervised by a Hong Kong-based supply specialist that manages and supports all imports.

Merchandise is delivered directly by suppliers to stores which increases efficiency and eliminates costly distribution centres and warehouses. Stores are responsible for their own deliveries to customers, with an average of 90% of deliveries completed within 24 hours of the sale.

Marketing

Targeted marketing and advertising campaigns are used to communicate the promise of quality, exclusive merchandise and personalised service to current, settled and potential customers.

The innovative use of mainstream media advertising, together with non-traditional marketing strategies has ensured that Lewis has consistently high consumer awareness levels among furniture retailers.

Marketing strategies and tactics are tailored for the Lewis target market profile. Targeted brochure distribution is undertaken in core trading areas, eliminating areas which attract a low sales return. These brochures feature the depth of the merchandise range while leaflets are handed out in selected high traffic commuter areas to attract customers into stores with quality promotional lines.

Local promotions are an effective marketing tool for Lewis in retaining and regaining customers and these have been increased in response to the slow-down in consumer spending. These community-based events take place in-store where guests are exposed to the Lewis product offering.

The electronic merchandise catalogue introduced in 2008 is now displayed in all stores. As furniture retailers are seldom able to stock a complete merchandise range in stores, this catalogue enables customers to navigate their way through the full range on a large touch screen as well as view all colour and fabric options. The electronic catalogue is unique in the retail industry and is proving a powerful sales tool, as well as a training aid for sales staff.

The value of customer loyalty is increasingly important in challenging economic times. Through the Lewis Club customer loyalty programme 600 000 members receive the Club magazine every second month, with competitions, coupons and merchandise give-aways on offer to readers. Membership is free to customers taking out insurance when purchasing merchandise at Lewis.

The benefit of customer loyalty is also reflected in the high level of repeat sales to current and settled customers. A re-serve programme identifies customers for further credit extension based on their payment history and current level of indebtedness to the group. Marketing campaigns are then targeted at these customers.

The creative and media functions within the Lewis marketing division have been outsourced to specialist agencies. This is aimed at enhancing the quality of the creative product, ensuring effective media strategy, planning and buying across all media and improving cost efficiencies.