Home Retail boss defends Argos strategy
CEO insists strategy is the right one despite slump in sales
By CFOWorld.co.uk | CFO UK | Published 09:57, 28 September 11
Terry Duddy, the CEO of Home Retail, said on Tuesday that the strategy being employed by Argos is the right one, despite a sharp decline in sales in recent quarters.
Argos, the British household goods company and Home Retail subsidiary, saw sales at stores open over a year decline by 9.6 percent in its first fiscal quarter and by 8.6 percent in the second but Duddy told reporters at a media dinner that no radical overhaul is needed to improve performance.
A market research exercise was conducted by Argos recently to establish “what the hell’s happening”, Duddy said, but concluded that the strategy as its stands is essentially the right one for the business.
“We know that that isn't necessarily what everybody wants to hear, because at this level of performance people are expecting a sort of transformation," he said, referring to analyst calls for Argos to dramatically scale down its 754-store portfolio, reduce catalogue sizes and cut its cost base.
Argos CFO Matthew Smith said its stores typically have 15-year leases and on average have seven years left to run.
“Hypothetically even if we did have lots of loss-making stores, we couldn't exit them anyway,” he said, although he did note that 150 store leases are up for renewal over the next five years.
“Our view looking forward is we think we can grow our store estate further.”
Duddy said he took comfort from data which showed that over a two-year period, Argos had not lost share in the markets it trades in.
“The thing that we’ve got to do is not just be great in the markets that we're in but get into new markets,” he said, pointing to recent investments in TV shopping, mobile phone applications, books and children's wear.
Duddy said Argos is facing structural challenges in the form of intense competition from supermarkets, specialists and Internet players as well as a changing product mix and changing consumer behaviour, but said he is confident the firm would still prosper.
“What’s going to happen is that we’ll be working in a consolidated market where there's less specialists than there are today,” he said.
With a stock market drop and the European debt crisis creating a grim backdrop, UK consumers are grappling with rising prices, subdued wage growth, a lack of credit, job insecurity, a stagnant housing market, government austerity measures and fears of eventual interest rate rises.
A survey on Tuesday said British retail sales weakened at their fastest pace in 16 months in September, with stores expecting little improvement in October.
Argos has been particularly hard hit by the downturn as its predominantly low-income customers are suffering the most severe squeeze on their budgets. The business sells consumer electricals, furniture, toys and jewellery.
“I do not know when it's going to get better,” said Duddy.
“I’m not one of those people who think 2012 might be the point of optimism with (the Queen’s Diamond) Jubilee and the Olympics. All I can say at this time is it might be a bumping along the bottom and I hope that's going to be the case.”
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