Lewis Group [Part 1]

The Business, Industriy and Competitors

Introduction

Welcome back readers! Today I will be unpacking the furniture retailer Lewis Group. Lewis is a small-cap stock listed on the JSE. This research report will cover some background on the business and the industry they operate in, key business risks, an analysis of the financial statements, assessment of the intrinsic value of the company as well as a technical analysis of the stock. 

About the Business

Lewis Group was established in 1934 and has since grown into a prominent player in the South African furniture retail industry. Lewis first listed on the JSE in 2004 and currently has a market capitalisation of R2.26 billion. The company specializes in furniture, household appliances, and electronics, targeting the middle to lower-income consumer segment. With a vast network of retail stores spread across the country, Lewis Group has built a reputation for offering quality products at affordable prices, supported by flexible credit options for customers. Lewis Group operates under the current brands:

1. Lewis is South Africas largest furniture brand and sells a rand of household furniture, electrical appliance and home electronics.
2. Best Home & Electric is a retailer of electrical appliances, sound and vision equipment and selected furniture lines.
3. Beares targets customers in a higher LSM group to those serviced by Lewis and Best & Electric stores and offers a more exclusive furniture range whilst utilising in-store credit facilities.
4. Monarch Insurance offers optional microinsurance products to customers purchase merchandise on credit. 
5. United Furniture Outlets (UFO) stores are located in malls and shopping centres and dont offer credit facilities. UFO stores are larger than Beares and Lewis stores and target a higher LSM consumer similar to Beares outlets.

The Industry and Competitors 

Lewis Group operates within the highly competitive retail industry in South Africa. The country's retail sector has experienced moderate growth in the past decade, driven by consumer spending, urbanization, and a growing middle class. However, the industry faces challenges such as increasing online retail competition and changing consumer preferences. South African consumers have also come under significant pressure in recent years post COVID as interest rates have risen along with inflation reducing the amount of disposal income consumers have to make purchase on discretionary household goods like furniture and applies. Lewis does however partially benefit from rising rates in increased interest income on goods sold on credit. This tough environment for the consumer however also increases the risk of customers defaulting and bad debts.

Lewis Group faces competition from both traditional brick-and-mortar retailers and e-commerce platforms. Competitors include Tapestry Home Brands which was recently acquired by the Foschini Group. Tapestry operating under the Coricraft, Dail-a-Bed, The Bed Store and Volpes brands. Tapestry however predominantly targets the highest LSM groups and thus Lewis a strong market position in the low to mid LSM market.