Business review
Argos Retail Group (ARG)
Argos Retail Group: overview
Nature of business
Argos Retail Group (ARG) is the UK’s leading nonfood, non-clothing retailer with sales of £5.5 billion in 2006. It sells products under two distinctive and complementary retail formats, Argos and Homebase, both of which are household names in the UK. Argos is a unique catalogue retailer recognised for choice, value and convenience. It sells general merchandise and products for the home from over 650 stores, online and over the telephone. Argos’ Internet site, www.argos.co.uk, is the third largest Internet retail site in the UK. Homebase is the UK’s second largest DIY retailer and is recognised for choice, style and customer service across the wider home enhancement market. It has 297 large, out-of-town stores as well as a growing Internet offering.
Markets in which ARG operates
ARG operates in the general merchandise and home enhancement markets in the UK and the Republic of Ireland. In the year ended December 2005, the UK general merchandise market and the home enhancement market each had sales of over £25 billion. The general merchandise market consists of jewellery, toys, sports and leisure, small domestic appliances, consumer electronics and large domestic appliances (it excludes health and beauty and entertainment, neither of which ARG operates in). The home enhancement market consists of housewares, furniture, DIY, kitchens, bathrooms and bedrooms, garden furniture and gardening products.
In the combined general merchandise and the home enhancement market ARG had a market share of over 10% in 2005 according to market research studies by GfK, Mintel and Verdict.
Growth drivers
ARG’s performance will depend on:
- overall growth in consumer expenditure;
- growth in the non-food, non-clothing market;
and
- ARG’s ability to take share in its product markets.
Looking forward, the management team at ARG believe that, following the current consumer spending slowdown, ARG’s product markets should return to more normal levels of growth over the longer term. Future growth in these markets will be driven by:
- increasing household formation;
- rising overall household disposable income;
- technology change and development;
- falling prices of necessary items such
as food and clothing leaving more discretionary spend for consumers
to spend on home and leisure related products; and
- rapidly expanding sources of low cost supply which will stimulate further consumer expenditure across these product markets.
Competitive position
ARG faces competition from many players in many different sectors. They can be summarised as:
- specialist multiples, such as B&Q in
home improvement, Currys and Comet in consumer electronics and
domestic appliances, Woolworths in toys and wider general merchandise
and H. Samuel in jewellery;
- specialist independents, that is regional
and local chains selling single product ranges, such as toys and
jewellery. With some exceptions, this area is generally losing
share;
- supermarkets, such as Tesco and Asda, who
have been growing share in certain parts of the nonfood, non-clothing
market, building on their regular footfall and increased space
given to these ranges; and
- online retailers. Although they represent only a small share of the non-food, non-clothing market currently, the growth of PC usage, broadband penetration and increasing use of Internet shopping is likely to lead to traditional store-only retailers losing share over time.
ARG sees its strengths in this competitive landscape as deriving from its:
- strong retail brands with large customer
bases;
- market leading position, allowing it to operate
with scale;
- product market authority driven by wide choice,
availability and service;
- purchasing and global sourcing scale and
expertise, driving value for the customer;
- integrated multi-channel offering, allowing
customers to shop in store, online or over the phone, as well
as to collect products from store or have them home-delivered;
and
- shared infrastructure and logistics expertise, leveraging such capabilities as home delivery, supply chain, catalogue production, the financial services offering as well as other central functions across the businesses.
Corporate objectives and strategy
ARG’s vision is to be a leading retailing group that delivers long-term sector-leading sales and profit growth, by leveraging its strengths to support its retail brands – Argos and Homebase. It will achieve this by developing world-class low cost sourcing capabilities (enabling ARG to deliver value to customers across a broad range of products) and delivering end-to-end customer solutions (giving customers convenient ways to order, pay for and obtain goods).
Key initiatives to support this strategy include:
- growing market share in targeted large product
markets. Given the flexibility of its formats and attractive customer
propositions, purchasing scale and sourcing capability, ARG has
an opportunity to increase its share in a number of large, fragmented
product markets. These markets include furniture, electrical goods,
home appliances, fitted kitchens and sports and leisure;
- leveraging a shared product pool and capitalising
upon purchasing scale. With UK leadership in many product markets,
expertise in sourcing and logistics and an increasing product
overlap, ARG expects to continue to provide value for money to
customers and improve its own financial returns;
- extending and exploiting multi-channel leadership.
The consumer focused, integrated approach at Argos that allows
ordering and receipt across multiple channels is expected to continue
to drive sales. This will continue to be leveraged to support
Homebase where appropriate; and
- expanding the Argos and Homebase store networks. Both chains will continued to add new stores as well as adjust formats such as the size of stores or the use of mezzanine floors. position is strengthened by its shared infrastructure and delivery expertise.
