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Lewis looks to smaller stores to boost margins – Business Day

May 24, 2011

FURNITURE retailer Lewis says it plans to expand its existing 582 stores to 700, as it focuses on smaller-format stores to boost margins.

The owner of the Lewis and the Best Home & Electric brands planned to build on the 40 stores it opened in the year to March — almost half of which were in the smaller format — as it increased the use of electronic catalogues that enabled stores to hold less stock, CEO Johan Enslin said yesterday.

Increasing its number of stores from 582 to 700 by 2013 is part of a strategy that, along with changing stock more frequently, Mr Enslin hopes will retain the loyalty of his customer base of lower-middle- income public servants — benefiting from above-inflation wage increases — and prevent them going to rivals such as JD Group .

If successful, the focus on smaller stores will help Mr Enslin achieve his ambition of raising his company’s operating profit margin to 26% from the existing 23%.

“They have tested electronic catalogues, it seems to be going well,” said Warren Buys, an equity analyst at Cadiz Holdings in Cape Town. “You don’t need the same amount of space inside the store.

“People like to touch, sit on furniture, but (the company is) able to carry less stock and increase margins substantially. The results of the smaller stores have been good.”

A focus on smaller stores of 250m² in size, rather than the larger traditional format of between 400m² and 450m² , allows Lewis to locate stores in value marts — smaller retail centres — such as in Orange Farm and Vosloorus on the outskirts of Johannesburg, that will not support a larger store. “It also gives us the opportunity to look in places like Soweto, particularly Maponya (Mall),” Mr Enslin said.

The rising fortunes of Lewis’s customers saw the company report a 21% jump in pretax profit to R1,04bn for the year to March.

Revenue rose 11,4% to R4,58bn as consumer appetite for credit grew. Sales on credit rose to 71,4% of the total from 68,5% a year earlier.

Debtor costs fell to 10,2% from 10,9% of the total debtors’ book, as collections improved with customers’ recovering fortunes. The percentage of customers in the “satisfactory paid” category rose to 74,5% from 72,7% a year earlier.

The growth, which Mr Enslin called a “solid rebound”, came as the company in October for the first time introduced a second product range for the year, whereas it had only previously had one new range a year. It was such a success the company will do it again this year.

It released its first new range last week and has pencilled the second in for October, but may do so a month earlier. “It’s furniture that attracts customers, as opposed to favourable credit rates,” Mr Enslin said.

“The challenge is to stay relevant. We are watching our competitors’ every move. If we need to bring it forward, we will.”