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Argos prepares to 'fight back' against Amazon

After a slump in sales that has prompted questions about its relevance on the modern high street, Argos is fighting back.

That is what Home Retail Group is expected to claim on Wednesday when its annual results show that a decline in the company’s profits since 2008 has slowed thanks to a recovering performance by Argos.

HRG, which also owns Homebase, is forecast to post pre-tax profits from its stores of around £90m for the year to March 2. This is well below the £433m that Home Retail earned in 2008, but is significantly better than analysts forecast a year ago.

In the final quarter of its financial year, Argos saw LFL sales rise by 5.2pc – its best performance since 2006.

Andrew Hughes, analyst at UBS, is now forecasting that HRG will grow profits in the new financial year for the first time since 2008, despite DIY chain Homebase being under pressure from the cold weather and a stalling home improvement market.

“Argos LFL's have been supported by less pressure on disposable incomes, fiscal changes and growth in tablet and TV markets,” Hughes said. “However, market share gains have also resumed, driven by the focus on pricing, click & collect and mobile, with grocers less active.”

HRG, led by chief executive Terry Duddy, claims that the rise in Argos sales is evidence that the company is well-placed to benefit from a digital retail industry where increasing numbers of customers want to collect online orders from high street locations.

Duddy and Argos chief executive John Walden are this year pressing the button on a transformation plan for Argos that involves spending £100m in each of the next three years to put the retailer in shape to battle with Amazon.

Their strategy is to develop Argos into a slick retailer focused on offering customers physical locations around the UK where they can collect orders and receive advice from customers assistants, something Amazon cannot offer.

As part of the plan, Argos will this year start to replace the laminate catalogue, a mainstay in stores since 1973, with web-based touchscreens.

In addition, there will be a new “fast track” collection service for customers and Argos will roll out new apps for smartphones and tablet computers.

Over the course of the turnaround programme, Argos intends to close around 75 stores as leases expire. It will also split the remaining 700 stores between “showrooms”, of which there will be about 100 stores, and collection sites, of which there will be about 600.

HRG is understood to be trialling this model in the north east, where one large showroom store in the area is supported by a series of smaller stores designated as collection points. If customers order a product that is not stocked in a smaller store, then the larger store can deliver it.

Argos intends to double the amount of own-brand product it sells so that by 2018 own-brand sales account for a third of the business.

The retailer already owns brands such as Bush and Habitat, but last week hired former Nokia executive Joanne Savage to the new role of head of own-brand in recognition that it needs to up its game in order to offer customers desirable exclusive products that cannot be bought elsewhere.

Source : Graham Ruddick – The Telegraph

29 April 2013
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