JOHANNESBURG - Retailer Lewis Group yesterday announced its foray into the high-end furniture market with a R320 million acquisition of United Furniture Outlets (UFO), the cash retailer of luxury household furniture which it aims to take to the rest of Africa.
Lewis, which said it would utilise its current cash resources to pay for the purchase price, said the acquisition would enable it to achieve improved economies of scale and provide a platform to penetrate new market sectors through a wider, more exclusive product range. Johan Enslin, the group chief executive at Lewis, said yesterday that the acquisition aligned with the group’s strategy of gaining access to higher income customers and would diversify its offering by increasing its cash-to-credit sales ratio.
“We believe the UFO brand and business model is scalable and offers an opportunity to extend the store footprint across South Africa and into the neighbouring southern African countries where Lewis currently trades. The business has an efficient supply chain, good growth prospects and will benefit from our group’s buying power,” Enslin said.
The group said the acquisition was subject to standard regulatory and competition approvals. Lewis has more than 700 stores in three segments. UFO was established in 2004 and has a retail footprint of 30 stores. More than half the outlets are located in Gauteng, including its flagship 5000m² mega-store in Marlboro, Sandton. UFO sells a variety of furniture, including lounge, bedroom and dining room products.
The acquisition marks the second coup for Lewis in less than two years. In March last year, the group said that it had completed the acquisition of a portfolio of 57 Ellerines and Beares stores in four southern African countries, expanding its store presence outside of South Africa to 120.
The transaction was valued at R250m. In November the company said its six-month profit dropped 39.6 percent, hit by the challenging economy and new credit approval regulations affecting consumer spending.
Enslin said that while Lewis Stores was satisfied with the quality of UFO’s unaudited financial information for the period ended 31 August, due to its unaudited nature, the company’s shareholders should exercise caution in placing reliance on the same.
“The unaudited balance sheet as at 31 August 2017 reflects net assets of R82m.”
Olukayode Jinadu, a market analyst at Seeking Alpha, said Lewis appeared financially stable and poised to remain profitable, but sales would remain flat or depressed over the medium term.
“Lewis Group is benefiting from the failure of its competitors in the retail furniture sector and this is the catalyst that is driving its market share gains", Jinadu said. Lewis is currently engaged in a legal wrangle with the National Credit Regulator after the watchdog said that it would appeal a tribunal ruling that cleared Lewis of breaching credit rules with the fees it charges customers.
The credit regulator last year referred Lewis to the National Consumer Tribunal for allegedly contravening credit rules when charging customers for warranties and club membership fees that entitle them to special deals.
Lewis shares fell 0.75percent to close at R26.60 on the JSE yesterday.
- BUSINESS REPORT