Further investment and refinement set for Argos

Supermarket group Sainsbury’s, owners of furniture brand Habitat and catalogue retailer Argos, plans to build on its momentum through its ‘Next Level Sainsbury’s’ strategy.

Detailed within the update, the group shared an insight into a number of areas of the business, including food, Nectar and company-wide investments, as part of its initiative to further strengthen the business and deliver enhanced returns to shareholders.

An area of focus also includes Argos, with the group looking to build on its strengths in convenience and value, growing frequency and spend through improved range and relevance while also delivering further operating model efficiencies.

The statement on Argos specifically said: “Argos has a structurally advantaged low cost-to-serve operating model, backed by the scale of being part of the UK’s second biggest general merchandise retailer3 and delivering a Click and Collect and delivery proposition unmatched by any other general merchandise retailer in the UK.

“We have further transformed this model in recent years, reducing fixed costs by more than 300 basis points of sales by reducing the standalone store estate and opening more Argos stores inside Sainsbury’s. We have made significant changes to how and where we move and hold stock, driving efficiency but also improving availability by making sure we have the right stock closer to customers at the right time.

“We have further to go in terms of Argos store estate changes and we will also further refine the store operating model, with clustered stores replacing a one-size-fits-all approach. This better recognises the significant variation in Argos store size and role. Early trials suggest significant cost to serve reductions alongside improved customer satisfaction as a consequence of better tailored ranges and service. We also expect end-to-end productivity programmes to drive significant improvements in working capital, availability and supply chain efficiency.

“Customers love and recognise Argos for the convenience and consistently great value we provide and this will remain at the heart of the Argos proposition. Half of UK households shop at Argos every year and we have the third most visited online retail website in the UK4. More than 70% of sales start online, 70% of sales are collected in store and nearly 70% of online Click and Collect orders are available for immediate collection. However, customers visit Argos on average only three times per year and we believe we have significant opportunity through increasing awareness of the Argos service proposition, and increasing frequency of visit and basket spend.

“We will extend range in selective areas and enter some new product categories, often through supplier-direct fulfilment, where we will sell more third party products through a stockless operating model. We will invest further in our website, app and customer relationship management capabilities to elevate Argos’s share of mind, encourage more browsing missions and inspire customers to trade up within product ranges, where we will continue to extend our range of premium brands and will strengthen our design-led own label ranges. We underperform competitors in terms of attachment rates, with customers only buying between one and two items per basket, offering a significant sales and margin opportunity.

“Financial services will continue to be an important part of the Argos proposition. Consistent with our recent announcement on the future of our Financial Services business, we expect to move to third party provision of Argos financial services products, improving the range and quality of payment solutions we can offer customers and increasing penetration, currently 21% of sales.”

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