Gore on the floor at Lewis

In what world would it make sense for a retailer’s customers to pay R25 996 for a flat-screen TV that cost R9 999?

Don’t be alarmed at the ruckus you’ll hear if you drive past Lewis’s head office, near Woodstock in Cape Town. That metronomic flapping noise you’re struggling to decipher is just the sound of chickens coming home to roost. Last week, lending watchdog Summit Financial Partners released alarming results of a “mystery shopping” trip it had made to a Lewis store in Howick, KwaZulu Natal.

It was an exercise that didn’t cover Lewis in much glory.

Summit’s “mystery shopper” supposedly took a shine to a flat-screen LED television, going for a song at R9 999. So what do you imagine it would have cost him to pay off an LG branded TV over 30 months?

A rather sobering R25 996,98, when the costs are totted up.

The reason the cost balloons so fantastically lies in the fine print. Lewis tacks on all manner of charges — including a R1 710 “extended warranty”, a compulsory R750 “delivery charge” (even if you fetch it), a R1 140 “loan origination fee”, R4 485 in “finance charges” and R6 201 in “insurance” costs. And don’t forget the R1 710 “service fee” — equal to a sixth of the TV’s price.

With so much else to be outraged by, it’s easy to lose sight of the fact that if you’d gone to three rival chains, you could’ve got that same TV for between R6 500 and R6 800 in cash.

The recording of that “mystery shopping trip” is chilling. At one point, when the shopper points out he doesn’t have only R10 in “expenses” as the clerk wrote, she responds: “But if we put [too] much on that monthly expenses [line], you won’t get open-to-buy [credit].”

Little wonder the national credit regulator has referred Lewis to the consumer tribunal, asking for a R10m fine.

This ordeal seems to have rattled investors: Lewis’s stock fell 16% in four days afterwards.

But this shouldn’t have been too much of a shock to anyone.

Seven years ago, I wrote in this magazine of numerous cases where Lewis appeared to have bent the rules.

One forklift driver, whose net monthly salary was R2 201, was assessed as having R2 100 to spend on debt as the shop assistant had entered R99 as his “minimum living expenses”. Lewis then sold him goods worth R3 109, which worked out to R8 976 over 24 months.

A kitchen hand at a Cape Town coffee shop, who took home R2 450/month, was assessed as needing only R1 for “living expenses”. Her reward: a five-piece dinner set.

You will have heard the story before, but what is new is that the investment community has pricked up its ears.

Barclays this week put out a research report detailing the Lewis “mystery shopping trip” in gory detail. The analyst said “this is an ageing retail model and will come under immense pressure as regards margins”.

It’ll only get worse, Barclays said, when government puts in place rules on how much companies can charge for credit life insurance, “which we believe forms a significant portion of total revenues and more than 100% of profitability”. As the R6 102 in insurance on a R9 999 TV shows, this isn’t wrong.

Another analyst from BNP Paribas says Lewis can expect “further pressure” as regulators take a microscope to insurance.

Lewis CEO Johan Enslin can’t be pleased. Last year, Enslin took issue with a column I wrote about its customer agreements, which say that “should the purchaser be in arrears”, he is liable to pay R12 for every telephone call made to him by the debt collectors and R30 for every “personal call”.

This means that if 215 000 of Lewis’s 678 109 clients were “slow payers”, this could boost Lewis to the tune of R135m.

An unhappy Enslin wrote me a letter saying that though Lewis is “legally entitled” to do so, “as it happens, Lewis has never charged any of these fees”.

It seems Enslin didn’t much like the picture painted of his company as a vulture feasting on the ignorant. But it’s a picture whose lines are being coloured in every week.