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Argos expected to accelerate store closures

Argos is poised to step up the pace of store closures, improve its online offering and sharpen prices, as part of a strategy overhaul to be revealed next week.

John Walden, the new managing director of the catalogue-based retailer, which is owned by Home Retail Group, is due to announce the results of his strategic review on Wednesday.

He is expected to step up the pace of store closures, from an original plan of 50 over the next five years to as many as 100, said people familiar with his thinking.

Mr Walden, a former executive at US retailers Best Buy and Sears, is also aiming to improve the value that Argos can offer customers, to help it cope more effectively with the threat from low-cost online retailer Amazon.

A key challenge for Mr Walden, who has been advised by OC&C Strategy Consultants, is to bolster Argos’s online offering. He is expected to improve delivery options for online orders, and increase the number of stores that offer same-day delivery.

Home Retail declined to comment on any aspect of the review, which is not yet finalised.

Argos has been under pressure from the rise in online shopping in the UK, and weak consumer demand among its lower-income customers. It has an estate of 750 stores, but is seeing shoppers moving increasingly online.

Pre-tax profit at Home Retail is forecast to halve in the first six months of this year, from £29.4m to £14m, as it counts the cost of poor weather on its Homebase chain, as well as continuing weak sales at Argos, and the effect of selling more lower margin products, such as electricals.

Home Retail said in May that leases on 230 Argos stores would expire over the next five years.

Terry Duddy, Home Retail’s chief executive, has consistently said it does not make sense to close hundreds of stores – preferring instead to wait until leases reach breaks in their contracts or expired.

However, some analysts said they would be disappointed if Mr Walden were not more aggressive in his store closures.

Philip Dorgan, analyst at Panmure Gordon, has said that Argos has “too many stores” and “needs to embark on a substantial store closure programme”.

Bank of America Merrill Lynch said: “We would like to see a more radical downsizing of the store estate”.

Analysts at UBS, also broker to Home Retail, and Bank of America Merrill Lynch are forecasting that the group will return to paying a dividend on Wednesday, forecasting 0.5p and 1p, respectively.

However, Bank of America Merrill Lynch said that the group “may feel it is too early to pay a dividend until it trades through [the] peak [Christmas sales period]”.

Source : Andrea Felsted – Financial Times
www.ft.com/cms/s/0/16dea664-19fd-11e2-a379-00144feabdc0.html

20 October 2012
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