Greedy Lewis’ loss is its comeuppance

VISIT any fleabag dorp from Krugersdorp to Queenstown that has a captive workforce and the chances are that you’ll see the usual suspects of predatory lending propping up the metaphorical bicycle sheds.

There’s usually an Ellerines (owned by African Bank, for its sins) right next to a Joshua Doore, which is then squeezed next to a Price ’n Pride or a Lewis store.

There’s not much distinctive in the furniture being hawked either: tacky couches with wafer-thin fabric, TV cabinets with space for mega-sized flatscreens and bedroom suites with headboards that would make Montecasino seem demure by comparison. And all on credit, repayable over 36 months.

Consider the Winslow two-piece bedroom suite, for example, now at “bargain prices” at Lewis Stores. To take home this magnificent faux French rip-off, which evokes images of the domestic quarters of 17th-century Versailles, you can either pay R7 999 in cash, or you could pay “in credit”. But were you to do that, you would end up paying R20 384 over those three years, including an R800 deposit.

It’s a sordid little trap, so it was hard to feel much sympathy for Lewis when it trotted out shambolic results for the year to March this week.

Sales of furniture and appliances, which account for 81% of Lewis’s sales, fell 3.6%. And yet, Lewis’s total revenue climbed 1.8%.

How is it, you ask, that Lewis is flogging fewer glitzy lounge suites and brittle cupboards and yet is still making more money?

Simple: because nearly threequarters of Lewis’s 678 000 customers are buying furniture, appliances and electronics on credit — and paying an absolute bundle.

So while sales fell, Lewis actually clocked up 11.6% more than last year in “finance charges and initiation fees” on its loans. These customers also paid R975-million in “insurance” fees on the furniture, in case, you know, they died before paying off the couches.

In all, Lewis made R2.18-billion in these sorts of charges last year — a shade less than the R2.4-billion it made by selling actual goods.

Although Lewis might claim to be South Africa’s “largest furniture brand”, it is pretty clear that this isn’t its most lucrative sideline.

Lewis CEO Johan Enslin complained to Bloomberg about how the strike in the platinum belt “has had, and is still having, a very significant impact on all our stores in the platinum belt”. And, as an indication of the helix stretching across the country, Enslin said “a lot of the money earned in the platinum belt actually ends up in the Eastern Cape, so we have seen a negative impact on our stores in that province”.

“The fridge and all the food cupboards will be really empty at this point in time . . . the guys will basically be behind on all their commitments and it will take time [for households to recover],” he said.

It is this sort of thing that explains why Lewis’s share price has fallen 16% over the past three years, whereas the JSE’s all-share index has gone the other way, climbing 52%.

Of course, another reason it is hard to have any sympathy for Lewis is that its executives have always created the impression they have no sense of the people behind its loans.

And when confronted about shady lending practices, Lewis turns deaf.

For example, Gloria Sithole, at one time a domestic worker for supermarket mogul Christo Wiese and later a cashier at the Hungry Lion takeaway joint in Cape Town, provided compelling evidence five years ago of how Lewis stores had billed her R5 000 for a DVD player and a TV stand she never got.

Still, Sithole was told she had to repay R13 200 in total over 30 months. This, when the R5 000 initial debt was more than her salary — showing how diligently Lewis had applied its “affordability criteria”.

Lewis’s practices at the time were truly scary. In one case, a forklift driver who earned R2 100 a month was sold goods for R3 109 (which worked out to R8 976 over 24 months, at R374 a month). The Lewis clerk who did the “affordability assessment” reckoned the forklift driver needed only R99 a month in “minimum living expenses” to survive.

So was it a surprise for investors that Lewis now had to write off a mega R570-million in “bad debt”, a third more than last year’s R418million? Is it a surprise that 157 000 of its 678 000 customers, nearly one in four, are considered “non-performing” debtors?

Well, no. Not if you had been paying any attention to how Lewis was making its money in the first place.