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Two furniture retailers yesterday issued contradicting reports about the performance of middle-income customers, sending mixed signals about the behaviour of consumers in this market segment.

May 22, 2007

By Thabiso Mochiko

Johannesburg – Two furniture retailers yesterday issued contradicting reports about the performance of middle-income customers, sending mixed signals about the behaviour of consumers in this market segment.

Ellerine Holdings said it had experienced a slowdown in the middle-income segment and on credit in the market, giving the impression that middle-income earners were tightening their belts.

Lewis Stores, however, said it had seen strength in this market and expected continued strong spending to boost the group’s growth.

Lewis sales grew 15.6 percent to R3.3 billion for the year to March, while Ellerine posted a record R4.4 billion in sales – an increase of 9.6 percent for the six months to February.

Ellerine chief executive Peter Squires said the middle-income market was “more of a debt burden than the lower-income [segment]“. The middle-income group spent its money on assets such as houses and cars, paying off credit cards and “social and recreation expenditure”.

Lewis chief executive Alan Smart said there had been “tremendous growth” in that market segment and it was expected to continue growing.

Lack of definition or a salary benchmark for classifying consumers as middle-income earners has brought further confusion.

Ellerine defines the middle-income market as a household with an an average income of between R5 000 and R10 500, while low-income households earn an average of R3 000.

Smart declined to be more specific on the Lewis definition, saying it served the living standard measure (LSM) four to seven group.

The Domestic Tourism Querterly for the third quarter of 2005 defines the LSM four to seven group as households with income of between R1 774 and R6 455 a month.

Although there was speculation of a slowdown in the country’s furniture sales boom, Lewis Group had seen the reverse of that. Furniture sales account for 50 percent of the group’s total sales, from 47 percent last year.

Lewis is opening 28 new stores claiming that there is demand for its products. “We don’t see a mature environment,” said Smart.

Lewis Group’s headline earnings a share for the year to March rose to R6.454 from R4.645 . Operating profit increased to R859.9 million from R670 million.

Ellerine expected the slowdown in the appliance retail market to last until August.

Squires said the group expected the lower-end market to slow because of the hikes in food and transport costs.

Ellerine grew headline earnings a share for the six months to February by 15 percent to R4.939 and increased operating profit by 17.3 percent to R853 million.