'Toothless' regulator fails to act on Lewis

This is the third time that the NCR has referred Lewis to the tribunal, which has so far not ruled on any of the allegations against Lewis.

David Woollam. Image source: LinkedIn

David Woollam, a financial analyst and director of Summit Financial Partners who undertook research into Lewis’ credit sales’ practices, said the lack of response indicated that investors believed the NCR was toothless. "Nothing ever happens at the tribunal and Lewis consistently claims it is not guilty," he said.

After the NCR’s first referral in July last year, which included a request for a R10m administrative fine, the Lewis share price slumped from a record high of just less than R100 to R80. It was at R49 on Tuesday.

The tribunal has yet to take action on last July’s referral, which related to allegations that Lewis had sold retrenchment cover to pensioners and self-employed consumers.

The retailer was forced to refund customers R46m of wrongful charges relating to retrenchment cover.

The latest referral relates to warranty charges and club membership fees charged by Lewis since 2007. The regulator alleges that these are in contravention of the act, and it wants the tribunal to order Lewis to repay its customers.

"The NCR further requests that the tribunal restrains Lewis Stores from charging maintenance costs and club fees to customers in an unlawful manner in the future, and seeks certain ancillary relief, including the imposition of an administrative fine of 10% of the annual turnover of Lewis Stores," says the NCR referral notice. A 10% fine would be over R500m.

Lewis said it had considered the allegations, and believed they were without merit.

CEO Johan Enslin has said the referrals are before the tribunal and, therefore, sub judice. Although denying any wrongdoing, the interim results showed Lewis did alter its accounting policies following the NCR’s earlier referrals, resulting in a R370m write-down.

The latest allegations are based on formal complaints lodged with the regulator by Summit Financial Partners. Previous referrals were also based on complaints lodged by Summit on behalf of its clients, who were customers of Lewis.

Woollam was particularly scathing about the "maintenance" charges, which he said customers were forced to pay, despite warranties being provided automatically with the product. One analyst estimated the charges represent about 12% of the cash price.

Woollam also criticised charges for club membership, as these clubs were nothing more than marketing devices.

He said Summit had also lodged complaints about delivery fees charged by Lewis.

"Even customers who’ve bought portable goods that they carry out of the stores, have been charged a delivery fee," said Woollam. All the extra charges amounted to thousands of rand over the repayment period, underpinning Lewis’s hefty operating margins, he said.

The increased scrutiny of its sales and credit practices has led analysts to question the sustainability of Lewis’s business model, particularly in an economy in which its primary target market is under considerable pressure.