Home Retail Group, which owns the catalogue retailer, is hoping gradually to convert Argos into a digitally led retailer, ditching its traditional catalogue model. It also wants to move its stores onto shorter leases so that it can jump around different locations more easily. In the near term the firm plans to close 10 stores, and no new premises will be opened.
You might ask what has brought on this sudden change of tack. Well if you include the group’s other large retail operation, Homebase, there is a storm a-brewing. The home wares chain reported a 6.2% fall in like-for-like sales compared with last year, thanks to dampened sales of gardening and outdoor goods during the wet summer. This, and the effect of recession on Argo’s lower-income customers, has caused group revenues to fall 1% to £2.53bn, and pre-tax profit to fall 37% to £17.9m. That, in case you didn’t notice, is an absolutely miniscule margin.
So, let’s consider Argos’ plan to shake things up. The plan, overseen by the chain’s new MD, John Walden, is to reinvest £300m over the next three years into pushing the company into competition with Amazon and the large supermarket groups. Around 10% of the chain’s 750 will be shed as and when leases expire, and this will be offset by an increase in the amount of stuff available to buy online. Walden said: ‘Our catalogue represents a big part of our business, so it would be foolish for us to pull it. But the trend towards digital is pretty obvious. The catalogue will evolve, not disappear.’
At MT though, we’ve heard the ‘evolving into an online presence’ before. Sounds like the catalogue will be kaput in a few years’ time. Even so, the Argos model works principally by maximising the old ‘sales per square foot’ measure – warehouses crammed full of products instead of airy-fairy ‘customer spaces’. If the chain can lower the cost of its premises and squeeze some decent juice out of its online operation, Home Retail Group may be in a reasonably strong position when the blasted recession clears up. And that’s what veteran retail chief executive Terry Duddy thinks, too: ‘This plan provides the right approach for Argos to achieve a long-term sustainable performance and profit recovery.’