August 10, 2010
Retail sales figures grew for the fifth consecutive month to 4.6% year-on-year for the three months ended May, indicating that consumers are slowly releasing their spending brakes and dipping into their pockets.
Coming off a very low base after the economic downturn, hard-pressed furniture retailers seem to be gearing up for a turn in the cycle as one of the main contributors to this increase, with retailers in household furniture, appliances and equipment at 15.6% and contributing 0.8 of a percentage point.
During the recession, furniture and appliance retailers were among the hardest hit because of debt collection difficulties and a large in sales of durable goods.
However, some fared better than others.
Lewis Group (LEW), which sells furniture to the lower and lower-middle income market, reported that pretax profit for the year to March 2010 grew 5%, while revenue lifted 8% to 4.1 billion rand.
“Sales of the higher margin furniture and appliance category increased by 8.5% as our merchandise strategy of sourcing exclusive and differentiated furniture ranges continued to benefit the group,” Chief Executive, Johan Enslin said.
Of the overall sales for the period under review, 68% was from credit customers.
The group said that the growth in sales came from the company’s strategy of keeping a close relationship with its credit customers, shunning the call-centre approach and encouraging customers to come into the stores to pay their accounts.
Rival JD Group, owner of Joshua Doore, Incredible Connection and Hi-Fi Corporation said that pretax profit in the six months to February 2010, fell 20%, while turnover increased 1% to 6.8 billion rand.
The company said that credit sales for the period under review fell 7.6% because customers stopped applying or qualifying for credit. Credit makes up 67% of JD Group’s sales.
On the bright side, the JD Group reported a reduction in debtors’ costs to 454 million rand from 561 million rand, largely as a result of the centralisation of the credit granting and credit collections strategy completed by the company in 2009. Lewis on the other hand, whose focus is to retain customers on their books, reported that its bad-debt impairment provision rose to 16% from 15.7% a year earlier.
“JD’s bad debt has come down, while Lewis’s is increasing because of extended terms on borrowing for those customers who can’t meet their payments,” a retail analyst said.
Lewis Chief Executive Johan Enslin said that debtor costs appear to have peaked and should moderate in the year ahead as the credit collections environment continues to improve.
Earlier in the year Lewis announced an aggressive expansion programme that would see its store base increase from 548 to 700 over the next three years.
The furniture retailer said that its new upmarket trading brand, My Home would target customers in the LSM 7-8 category and that of its 19 Lifestyle Living stores, 13 would be converted to My Home divisions.
“We will focus on differentiating our merchandise by offering exclusive and innovative ranging to attract customers who would use in-store credit infrastructure,” Lewis said.
With almost 55% of sales turnover generated from repeat sales, Lewis’s customer-centric business model seems to be a winning formula during torrid times that has seen it post good numbers among its peers in the furniture industry.