Home Retail focusing on mobile and online to reinvent Argos
Shares in the group rose 6 percent after it said it would reposition the 739-store Argos operation from a catalogue-led business to a digitally-led business
By CFOWorld.co.uk staff | CFO World | Published 15:07, 24 October 12
Britain's biggest household goods retailer Home Retail has said it intends to reinvent its troubled Argos business for the digital age, focusing on online, mobile and tablet transactions to attract more shoppers and reverse a sharp decline in profit.
Home Retail is targeting a 15 percent rise in sales by 2018. Shares in the group rose 6 percent after it said it would reposition the 739-store Argos operation from a catalogue-led business to a digitally-led business.
"The plan will reinvent Argos as a digital retail leader," Chief Executive Terry Duddy told reporters on Wednesday, after the group reported a 37 percent slump in first-half profit.
Many British retailers have been under pressure as consumers are squeezed by higher prices, muted wage growth and government austerity measures designed to cut record national debt.
Argos has been particularly hard hit because its mainly low-income customers have suffered most and because it faces intense competition from specialist stores, supermarket chains such as Tesco and online retailers such as Amazon.
Home Retail's five-year plan for Argos, which follows a six month strategic review led by the division's new managing director John Walden, is targeting 4.5 billion pounds ($7.2 billion) of sales by 2018, up from the 3.9 billion made in 2011-2012, as well as mid single-digit operating margins.
The firm would invest 100 million pounds a year in Argos over the next three years to achieve this, mainly on IT infrastructure, raising group capital investment to 525 million pounds over the period.
Exceptional costs will total 50 million pounds.
"The transformation programme is ambitious but achievable," said Duddy.
As part of the plan the group will likely close or relocate at least 75 Argos stores as their leases expire over the next five years.
The group said that by 2018 around 75 percent of Argos's store estate will be on lease terms of five years or less, providing it with the flexibility to respond to market changes.
Stores will be focused on product pick-up and customer service for transactions that will increasingly be managed online or through mobile devices.
The Argos catalogue will be adapted to support the digital offer but will not die, with Duddy predicting it will be around "in some form or other" at the end of the five-year plan.
The plan will also involve a bigger range of products intended to appeal to a wider range of socio-economic groups and which are made available faster to customers.
Shares in Home Retail, already up a quarter this year having slumped in 2011, were up 5.8 pence at 109.9 pence at 0956 GMT, valuing the business at 898 million pounds. The stock rose as high as 115p, its highest since April.
"We don't think that the business review of Argos has found a magic bullet," said Panmure Gordon analyst Philip Dorgan, who has previously called for more substantial store closures.
"That said, the new plan is likely to increase optimism that value can be created at Argos."
For the six months to September 1, Home Retail, which also owns the Homebase home improvement chain, reported an underlying pretax profit of 18 million pounds.
That compared with analysts' consensus forecast of 12.2 million, according to a company poll, and 28.3 million in the same period last year.
Profit at Argos was flat at 3.3 million pounds and fell 18 percent to 24.5 million at Homebase.
Group sales fell 1 percent to 2.53 billion pounds.
Duddy said market conditions remained fragile but said the group was "in good operational shape" as it approached the peak trading period.
Home Retail is cutting its interim dividend to 1.0 pence per share from 4.7p last time.
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