Lewis flags muted sales growth as customers increasingly turn to credit

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  • Lewis says consumers are struggling amid high unemployment, rising interest rates and soaring inflation.
  • Consumers are switching to credit rather than cash, a trend which has recently accelerated.
  • Load shedding has also disrupted retail trading patterns.
  • For more financial news, go to the News24 Business front page.

SA's largest furniture chain Lewis reported on Friday that merchandise sales for the nine months to December rose by a muted 2%, with consumers turning to credit as tough economic conditions begin to bite.

Along with high unemployment, elevated inflation, and rising interest rates, the firm also reported it had to contend with "significantly disrupted" retail trading patterns due to load shedding, especially during festive season.

The group’s update also underlined how cash-strapped customers were eschewing cash sales in favour of credit, with its more credit-dependent brands Beares, Lewis and Best Home & Electric faring better than its cash retail brand UFO, whose sales fell by almost double digits.

In morning trade the group's shares had fallen just over 2% to R46.10, having lost almost 7% so far in 2023.

Click here for more details on Lewis Group's share price and other info 

Lewis, Beares and Best Home & Electric had been supported by an "increasing consumer appetite for credit", the group said, managing to grow sales by 3.7%, while sales at UFO declined by 9.7%.

Lewis said that credit sales, which accounted for 58.3% of sales compared with 50.9% in the same period to December 2021, rose 16.8% while cash sales declined by 13.5%, "reflecting the mounting pressure on consumer disposable income".  The firm said it was still able to report very stable collection rates with debtor costs only rising minimally.

The pressure on consumers appeared to intensify in the third quarter to December with Lewis reporting that merchandise sales in that period declined by 1.1% with sales in the traditional retail business consistent with the prior period, while UFO's sales were 9.9% lower. Credit sales for that three-month period grew 17.3%, while cash sales fell by a just over a fifth.

The group said that overall collection rates strengthened to 82.7% for the third quarter, compared with 79.7% for the third quarter of 2021. It was 82% for the nine months, compared with 79.1% for the nine months to December 2021. Debtor costs were 2.2% higher for the quarter and only 0.2% higher for the nine-month period.

Inflation bites

Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, that even with the growth of 3.7% for the group’s traditional businesses, inflation needed to be taken into account, which suggested that volumes had gone backwards.

While Lewis did not say what internal selling price hikes they had to introduce, "you can make the assumption that it includes inflation which is probably higher" than the growth it achieves, he said.

This segment of the market, which sold discretionary goods, could not be expected to flourish in the prevailing weak economic environment, said Treurnicht.

Lewis had an advantage in that it sold on credit, said Treurnicht, and while "those credit numbers are massive", debtor costs were still relatively low, he said.

But the swing away from cash sales, especially the 20.7% plunge for Lewis in the three months to December 2022, was a "major concern" for Treurnicht as it indicated how much pressure consumers were under.

FNB portfolio manager Wayne McCurrie said Lewis’s update indicated there was clearly pressure on demand for big ticket items such as lounge suites, fridges and stoves.

"They actually went backwards quite strongly volumes wise. They [consumers] are not really spending on big ticket items, and when they do, they are buying on credit."


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