Dineo Faku
LEWIS Group is making good on its acquisition of Beares, out of the failure of African Bank Investments Limited (Abil), as it yesterday announced plans to open 100 new Beares stores.
The group plans to spend R100 million this year, including funds for 20 new Lewis stores and 10 Beares stores.
The Beares expansion is a bid by Lewis to gain market share and attract more well-heeled furniture shoppers to which it has limited access.
Lewis chief executive Johan Enslin said the opening of the 10 Beares stores was to test the higher-end market. If successful, the retailer would expand the number of Beares stores to 200 within the next five to seven years, he added.
Aiming higher
Lewis bought 61 Beares stores for R93.7m from Ellerine Holdings, the furniture division of Abil, which went bust in August last year.
Enslin said the sale of a large stock of furniture by Ellerines’ rescue practitioners at a sharp discount had eaten into its profit.
The retailer had tried its hand at attracting high income consumers before, but was forced to close its Lifestyle Living chain in 2011, Gryphon Asset Management portfolio manager Reuben Beelders said.
“The top end of the market is not easy, they are very picky,” Beelders said, adding that many of South Africa’s wealthier consumers were in more debt than some retailers realised and could be hit hard if interest rates rose by 1 percent.
The Reserve Bank has warned that it was in a rate-hiking cycle.
Enslin said Beares was a scalable brand that offered organic growth prospects.
“We have very limited exposure in living standard measurement (LSM) categories 8 to 9. We believe the exposure to Beares offers an opportunity to gain market share in this group,” Enslin said yesterday.
Lewis targets consumers in the middle- to lower-income LSM categories from 4 and 7.
Mark Hodgson, an analyst with Cape-Town based Avior Capital Markets, said Beares’ expansion would help attract better quality customers.
“I support Lewis opening more Beares stores, while looking to reduce existing store sizes and focusing on improving the per store sales densities,” Hodgson added.
“This gives them access to higher-end customers who tend to buy less on credit,” he said.
The expansion of Beares is against the backdrop of a challenging retail environment.
Ordinary consumers are grappling with diminishing disposal income due to high electricity tariffs, slow economic growth and a looming interest rate hike.
“In this environment the group will focus on driving quality credit sales, containing costs and further improving collection rates,” Enslin said at the results presentation.
He said the firm had adopted a personal approach to collecting credit. “We don’t have debit orders and customers are encouraged to pay their accounts inside our stores where we have employed locals who can speak the customers’ mother tongue and build personal relationships.”
The group was founded 80 years ago and its trading brands include Lewis, Best Home and Electric, and My Home. The 12 My Home stores have been incorporated into the Beares business.
Lewis now has 716 stores and opened 19 new stores in the period under review.
The group yesterday posted an 8 percent revenue increase in the year to March to R5.7 billion as merchandise sales grew.
It reported headline earnings per share down 4 percent to 882.7c in the year to March.
A final cash dividend of 302c a share was declared, unchanged for the previous year.
Lewis shares on the JSE closed the day 1.18 percent lower at R92 yesterday. – With additional reporting by Reuters