Argos to Close 75 Stores as Focus Shifts to Online Retailing

Posted on 27 October, 2012 by Kirsten Kennedy

The creation of online shopping has had a huge impact on traditional high street stores, with many consumers now choosing to purchase items from the comfort of their own homes rather than venturing out to battle queues, crowds and wet weather. As a result, many are being forced to adapt, focusing more energy on their websites than their stores.

Argos is one such retailer that has struggled to compete in a more digitally focused market, with annual revenue and sales figures dropping steadily due to cheaper rivals with more customer orientated sites. However, the retailer hopes that this will change in the near future, with plans to alter its format to a more digitally based platform already in motion.

Home Retail, the owner of the Argos chain, has revealed their intention to cut back on circulation of the traditional Argos catalogue – something which has been found in homes nationwide since its launch in 1973. Additionally, 75 stores in the chain’s commercial property portfolio will be either shut down or relocated to more profitable areas as the company shifts its focus to the digital aspect of business.

The first online catalogue will be launched in the run up to Christmas, followed by a trial period in January to investigate exactly how many physical catalogues will be required and what format they should take in future.

In future, the remaining stores in the Argos portfolio will play a larger part in the online business, with many being used as pick up points for customers living locally. This will be achieved by the chain closing a number of its 739 stores and taking up shorter leases in order to make relocation easier.

John Walden, who was brought in as CEO of Argos earlier this year in an attempt to turn around the business’ poor fortunes, said that the physical catalogues were unlikely to be axed completely, as around 85 per cent of customers still consult them before making a purchase. However, as more and more consumers shift to the online side of the business, the distribution of catalogues will decline “precipitously”.

Terry Duddy, chief executive of parent company Home Retail, said; “The transformation plan aims to deliver growth by repositioning Argos as a digitally led business from a catalogue led business, leading the market growth of digital commerce through online, mobile and tablet, and offering customers more products with the fastest, most convenient fulfilment options.

“This plan provides the right approach for Argos to achieve long term sustainable performance and profit recovery.”

Home Retail also announced the Group’s half year profits this week, with all indicators pointing towards a return to growth for Argos. Although underlying earnings at the chain dropped by 3 per cent to £3.3 million, like for like sales returned to growth, with a 0.6 per cent increase in the six months to September 1st when compared with the same period last year.

Unfortunately, Home Retail’s other major chain – Homebase – failed to match Argos’ success, with half year like for like sales down 6.2 per cent. Underlying earnings also dropped by 18 per cent to £24.5 million, with the poor performance put down to this summer’s wet weather. Seasonal items such as barbecues and patio furniture failed to sell as well as in previous years. The chain will no doubt be hoping that the run up to Christmas will yield better results, with items such as Christmas lights expected to make up part of the sales deficit in time for the release of annual results.

Equity analyst at Hargreaves Lansdown Stockbrokers, Keith Bowman, believes that the future for Home Retail and its subsidiaries will be profitable now that bosses have a clear plan for the future of both businesses.

He says; “Hamstrung by store leasing agreements, management has opted for a middle ground approach. The Argos store base will be reduced, but importantly, over a period of time.

“Meanwhile, investment in order to become a driven online retailer is being made. Furthermore, against dire expectations, profitability has surprised to the upside, with cost savings and favourable currency movements at Homebase proving a key factor.

“For now, today’s update helps end a long period of strategy uncertainty.”

Do you think Argos are right to shift the focus from physical stores to the online marketplace, or do you believe that the current format will work well when the recession eventually ends and shoppers begin spending again? How would you suggest Home Retail go about striking the right balance between traditional catalogues and digital retailing?

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