Lewis plans to open five to 10 new stores of its high-end United Furniture Outlets (UFO) in the coming year to attract wealthier customers, the South African retailer said on Wednesday after reporting a decline in earnings.
The group’s core lower to middle income customer base has been hurt by increasing living costs, high unemployment and limited prospects in an economy that has been growing slowly.
In order to cope, the 84-year-old household furniture and electrical appliances retailer bought luxury furniture retailer UFO last year to diversify and win higher income customers in urban areas, where it has had limited presence in the past.
Group Chief Executive Johan Enslin told Reuters the group would have liked to add more than five to 10 UFO stores but he said: “Unfortunately the retail space is not readily available in the centres and areas where we want to go open stores.”
Enslin said UFO would focus on provinces where it already has a presence before expanding to other regions.
UFO has strong presence in Gauteng and Mpumalanga and small presence in the Northern Cape and Free state provinces.
“The next logical expansion area for us after we’ve saturated these markets would be to move into the Eastern Cape where we believe there will be very strong demand for the upmarket products that we sell through UFO,” Enslin said.
Group revenue for the year-ended March inched down 0.6% to R5.56 billion ($441 million), mainly because of lower credit sales in previous years that meant it now had less annuity income.
Group credit sales account for 65.7% of total sales, while merchandise sales rose 9.9% to R2.9 billion, with comparable store sales up 10.1 percent.
Headline earnings per share (EPS) plunged 24.3 percent to 302.6 cents.
South African retailers have struggled to lift earnings as consumers face increasing pressures on disposable income.
Lewis expects the sales momentum to continue into the new financial year.
The group maintained the final dividend at 100 cents per share, bringing the total dividend for the year to 200 cents per share.
Shares in Lewis were down 1.5% to 36.98 rand at 10:07 GMT
($1 = 12.6320 rand)