Published: 20 Oct 2010
Last Updated: 06 Nov 2012
Any retailer that relies on those at the lower end of the income bracket is unlikely to have an easy time this year – as Argos owner Home Retail Group has demonstrated today. Reporting its second-quarter results, the group says sales at Argos have fallen by 6.5% over the six months to August 28 as people slowed down their spending on gadgets and video games. Fortunately, HRG was propped up by its other big business, Homebase, which saw sales remain pretty much flat. Its message today, though, was that retailers are likely to be in for a rocky Christmas.
The group admitted today that Argos’ core customers, who are generally in the £7,000 to £25,000 earning bracket, have reined in their spending after coming under more pressure than other consumer groups. As a result, operating profits have fallen by £25m – almost a third – at Argos, while profits for the whole group fell to £103m – down from £117m in the same period last year. For a company that lost its place in the FTSE 100 last month after a sharp fall in its share price, that’s not very good news.
But given the tough conditions the group has been facing over the last few months, HRG didn’t do quite as badly as you might expect – in fact, despite poor sales, Argos managed to maintain market share, even growing it in some regions. And the group’s chief exec, Terry Duddy, seems pretty proud of himself, saying that the company had been shored up by ‘excellent cost management’ (a coded way of saying that last year’s strategy of cutting hours for shop staff and making redundancies at head office seems to have worked). And let’s not forget Homebase, which did see sales drop – but only by 0.8%.
Still, things aren’t going to be easy over the coming months. Sports Direct has already warned today that thanks to January’s rise in VAT from 17.5% to 20%, the first few months of 2011 are going to be ‘extremely challenging for all retailers in the UK’. And while Duddy says those cuts will allow HRG to enter its next trading period ‘from a position of operational and financial strength’, that’s by no means a guarantee that people will be willing to spend – particularly after George Osborne has finished with them.
The group admitted today that Argos’ core customers, who are generally in the £7,000 to £25,000 earning bracket, have reined in their spending after coming under more pressure than other consumer groups. As a result, operating profits have fallen by £25m – almost a third – at Argos, while profits for the whole group fell to £103m – down from £117m in the same period last year. For a company that lost its place in the FTSE 100 last month after a sharp fall in its share price, that’s not very good news.
But given the tough conditions the group has been facing over the last few months, HRG didn’t do quite as badly as you might expect – in fact, despite poor sales, Argos managed to maintain market share, even growing it in some regions. And the group’s chief exec, Terry Duddy, seems pretty proud of himself, saying that the company had been shored up by ‘excellent cost management’ (a coded way of saying that last year’s strategy of cutting hours for shop staff and making redundancies at head office seems to have worked). And let’s not forget Homebase, which did see sales drop – but only by 0.8%.
Still, things aren’t going to be easy over the coming months. Sports Direct has already warned today that thanks to January’s rise in VAT from 17.5% to 20%, the first few months of 2011 are going to be ‘extremely challenging for all retailers in the UK’. And while Duddy says those cuts will allow HRG to enter its next trading period ‘from a position of operational and financial strength’, that’s by no means a guarantee that people will be willing to spend – particularly after George Osborne has finished with them.
