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Sales growth slips at Lewis as consumer debt pinches

Samantha Enslin-Payne

Lewis Group reported like-for-like sales growth of just 1 percent for the year to March as high fuel and food prices, and an increase in consolidated loans, depressed consumer spending. These are factors that will continue to place the group and its competitors under pressure in the year ahead.

Chief executive Johan Enslin said trading conditions became increasingly challenging during the year as consumers felt the pressure of rising transport and utility costs. “Lower disposable income impacted both our sales and credit collections.”

Lewis Group reported yesterday that revenue increased by 6.1 percent to R4.9 billion. Merchandise sales grew 3.3 percent to R2.37bn, but growth excluding new stores was just 1 percent. Credit sales as a percentage of total sales were steady at 71.4 percent.

An analysis of the group’s debtors book shows that 72.1 percent of customers were in the “satisfactory paid” category compared with 74.5 percent in the previous year.

Non-performing accounts increased from 11.2 percent to 13 percent at year end.

The group’s operating profit margin increased by 50 basis points to 23.5 percent and resulted in 8.2 percent growth in operating profit to R1.14bn. Headline earnings increased 13.3 percent to R781 million.

Enslin said consolidated loans, which competitors began marketing aggressively in September last year, were also affecting the business.

Through these loans, several store accounts are consolidated into one loan on extended terms – in some case over 84 months – to make the repayments more affordable.

Enslin said the effect was that when Lewis extended credit it took 35 percent of a consumers’ disposable income, while a consolidated loan could take as much as 90 percent. The extended terms meant that “these consumers are taken out of circulation, in some cases for as long as seven years”.

Syd Vianello, an analyst at Nedbank Capital, said Lewis’s results were in line with expectations and were a reflection of the entire industry being under pressure. “Good retailers are finding consumers are not able to take on more credit.”

He added that furniture retailer Ellerines, a part of African Bank, which reported its results earlier this week, showed an increase in comparable store sales growth only by contracting retail space.

Other businesses are also affected, with fast-moving consumer goods manufacturer Tiger Brands saying consumers were trading down from more pricey, branded food items to cheaper products, including private label goods.

Vianello said the situation faced by retailers would only improve when a significant number of jobs were created.

He said although the number of retrenchments was falling and many consumers still had jobs, their obligations, in terms of paying off debt and coping with the rising costs of fuel and food, meant they were spending more than they earned by using credit and loans. Personal loans took time to pay off and it was likely that for the next two years, retailers would be under pressure until the number of loans extended and jobs created stabilised.

Enslin said the group’s strategy to counter depressed consumer spending included introducing new ranges and opening smaller, leaner stores.

During the year 17 Lewis and 12 Best Home and Electric outlets were opened, bringing the store footprint to 602.

Shares in Lewis rose 0.4 percent to R74.50 yesterday.

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