Why Lewis should step out the laager

ARE alarm bells ringing at furniture retail company Lewis? Although the 80year-old company boasts that it is South Africa’s “largest furniture chain” with 636 stores, it has never been particularly great at transparency.

Perhaps this is to be expected given that Lewis’s business model relies largely on flogging expensive loans to 670 000 of South Africa’s poor- to middle-income customers so they can buy sofas, TV sets and bedroom suites from those stores.

CEO Johan Enslin, the bespectacled 40-year old who joined Lewis in 1993 as a fresh-faced 19-year-old salesman before rising “rapidly through the ranks”, has been particularly intent on dodging the spotlight in recent weeks.

Last month, this newspaper asked to speak to Enslin about various apparent red flags, including whether its debtors book is really as healthy as Lewis claims.

Was it prudent, for example, for Lewis to set aside only R22.9-million to cover possible bad debt for 68% of its customers whom it believes are “satisfactory” payers, which only equates to about 0.5% of the amount they borrowed?

This is a rather pertinent question since rival JD Group hit a wall earlier this year precisely because it chronically underprovided for an avalanche of bad debt.

But Enslin refused to speak to us, seemingly ignorant of the King code requirement that public companies be “honest, open and transparent” with all stakeholders, including the media.

When pressed, Enslin wrote a letter to this newspaper justifying this. “We do not believe that engagement with yourself would serve any purpose,” he said.

(On this point, why indeed would one ever engage with criticism, when the company of fawning praise singers is ever so much more comfortable?)

Enslin seemed particularly irked that this newspaper had pointed out that Lewis’s credit contracts stipulate — in fine print — that it can charge clients R10 for each phone call it makes when customers fall behind on instalments.

In his letter, Enslin said that even though Lewis was “legally entitled” to do so, “as it happens Lewis has never charged any of these fees”.

Enslin said this newspaper made “sweeping assumptions” because of our “bias” against his company.

When asked why Lewis would include these charges in its contracts if it never intended collecting them, Enslin ignored the question.

But if investors were looking for a red flag, they might have taken note of a spate of resignations of Lewis’s independent non-executive directors in recent weeks.

On July 1, for example, Lewis revealed that independent director Siza Marutlulle had “resigned” the day before — June 30.

A sudden resignation of a director, announced after the fact, is one of those red flags that market watchers tend to notice.

Especially as it came aweek after Zarina Bassa, the highly rated former head of Absa’s private bank, also revealed that she would be quitting as an independent director after Lewis’s AGM next month.

In many cases, there is a story behind any notice of a director’s resignation “with immediate effect” — whether it be a hot-tempered boardroom clash or worse.

But here, Lewis chairman David Nurek tells us, there’s no story.

Bassa and Marutlulle, he said, resigned “for personal reasons, and not for the contemptuous reasons you suggest”.

Quite what these personal reasons are no one is saying.

When contacted and asked why she quit so suddenly, Marutlulle said: “I’ve been on the board five years and felt I’d served my time.”

So she had no issues with the company then? She responded: “I didn’t say that. I said I’ve contributed as much as I can.”

Cryptic enough, even if it is all as innocent as Nurek says.

But why then Enslin’s pinprick sensitivity to any questions over Lewis’s lending ethics?

Perhaps you can’t blame Enslin for retreating back into his laager at the first sign of criticism.

There is, after all, an unsecured lending tornado whistling through the companies that have given microloans to poor South Africans. Lewis is probably hoping that if it keeps its head low not too many of its stores will blow over.

But you’d have to say that for a company that has made billions in an industry notorious for exploiting thousands, blinkering itself to criticism is probably not the most profitable long-term approach.