operational review: retail brands

Lewis is South Africa’s single largest furniture brand and contributes 82% of the group’s merchandise sales. Best Home and Electric has increased its share of group sales to 12% through an active store expansion programme in recent years.

Lifestyle Living, which was acquired by the group in 2003 to focus on higher income customers, accounts for 6% of merchandise sales. The retail chains are supported by Monarch Insurance, the group’s short-term insurer.

Market positioning

Lewis 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 stores then select a further optional range to cater for specific markets and regional differences. Lewis outlets are generally situated in main streets and town centres, with some presence in shopping centres. Lewis has 427 stores, including 47 stores in the neighbouring countries of Botswana, Lesotho, Namibia and Swaziland.

Developments in 2009

Lewis successfully piloted a small store concept which has enabled the chain to gain access to high traffic areas at lower rentals. This store concept offers customers key merchandise lines, with the balance of the range available on the electronic catalogue and display screens in-store. This store format will form part of the Lewis expansion plans in the year ahead.

Performance

		2009	2008
Total revenue, including risk and financial services
revenue	Rm	3 204.5	3 031.1
Total revenue growth	%	5.7	7.8
Merchandise sales	Rm	1 568.5	1 542.5
Merchandise sales growth	%	1.7	4.1
Comparable store merchandise sales growth	%	(0.4)	1.8
New stores opened during year		10	11
Number of stores		427	417
Total trading space	m²	201 458	198 282
Annual revenue per m²	R’000	15.9	15.3
Credit sales	%	67.9	70.8

Market positioning
Best Home and Electric is a retailer of electrical appliances, sound and vision equipment and furniture, targeting a similar customer profile to Lewis in the rapidly growing LSM 4 to 7 groups. The chain offers exclusive branded merchandise which is differentiated from Lewis to create a distinctive electrical goods brand. Stores are smaller than Lewis stores and are generally situated in high traffic areas with high trading densities.

Developments in 2009
In response to growing customer needs, a limited range of furniture lines were introduced into stores and the chain rebranded as Best Home and Electric to reflect this change in merchandise offering. This move supports the group’s merchandise strategy of increasing furniture sales.

Performance
		2009	2008
Total revenue, including risk and financial services revenue	Rm	454.3	416.3
Total revenue growth	%	9.1	11.9
Merchandise sales	Rm	226.0	218.2
Merchandise sales growth	%	3.6	7.5
Comparable store merchandise sales growth	%	1.7	(1.1)
New stores opened during year		3	8
Number of stores		88	87
Total trading space	m²	12 829	12 686
Annual revenue per m²	R’000	35.4	32.8
Credit sales	%	60.3	63.4

Market positioning

Lifestyle Living is a niche retailer of stylish and contemporary furniture to consumers in the LSM 8 to 10 market. Stores are located mainly in shopping centres.

Performance

		2009	2008
Total revenue, including risk and financial services revenue	Rm	148.3	149.0
Total revenue growth	%	(0.5)	9.1
Merchandise sales	Rm	125.4	129.0
Merchandise sales growth	%	(2.8)	5.0
Comparable store merchandise sales growth	%	(6.5)	(9.4)
New stores opened during year		–	3
Number of stores		20	21
Total trading space	m²	8 815	9 268
Annual revenue per m²	R’000	16.8	16.1
Credit sales	%	27.4	26.6

Monarch offers a range of short-term insurance products to the group’s customers purchasing goods on credit.

The basic insurance package provides cover for the settlement of 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 natural disaster. A retrenchment cover benefit is also available. Similar products are offered to the group’s customers in neighbouring states through contracted third-party insurance partners.

Customers taking out insurance products through Monarch qualify for free membership of the Lewis Club.

Monarch is registered with the Financial Services Board and operates under a restricted short-term insurance licence. The Short-Term Insurance Act requires the company to hold assets to meet future financial obligations and total insurance assets were R734.2 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 board of Monarch. Funds may only be invested in conservative asset classes and within prescribed regulatory limits.