A comfortable winner in the tattered JSE furniture sector
Unfancied Lewis dodged credit squeeze by buying the UFO chain that sells furniture and appliances for cash
The JSE furniture and appliance retail sector has been widely regarded as saturated and has gone through much consolidation in the past 10 years.
Far fewer players operate in the sector than before and a main beneficiary has been the Lewis Group, now a leading furniture and appliance retailer in SA.
Lewis CEO Johan Enslin estimates that as many as 1,100 retail stores shut their doors in recent years. Pepkor (formerly Steinhoff Africa Retail) alone closed 300 furniture and appliance stores over the past three years. Though Lewis has done well to avoid the bad debt issues that plagued other retailers that sell largely on credit to low-income earners, it also knew it was vulnerable to a slump in the economy.
To mitigate this risk, it bought the United Furniture Outlets (UFO) chain, which sells for cash to middle- and upper-income customers. This has given the company a nice safety net at a time when retailers have had to rethink their business models and deal with a struggling economy. The acquisition paid off handsomely. UFO was the main reason overall sales rose 13.2% for the quarter and were up 12% for the nine months to end-December.
By comparison, Pepkor said sales for furniture and appliances grew only 0.6% and actually dropped 2.7% on a like-for-like basis for the quarter to end-December.