It’s just been announced that Home Retail Group’s annual sales have stayed more or less flat at £5.48bn, with pre-tax profits rising from £104m to £130m.

It’s just been announced that Home Retail Group’s annual sales have stayed more or less flat at £5.48bn, with pre-tax profits rising from £104m to £130m.

More surprising, perhaps, is the identity of the white knight that saved the group from further losses:  Argos.

Argos is working hard to transform itself from a catalogue merchant to a strong online player – and its efforts seem to be paying off. 

The company’s sales have grown for the first time in five years: like-for-like sales rose by 2.1% in the 52 weeks to 2 March, following an 8.9% drop the previous year. Interestingly, more than half of its sales are now coming from outside its stores, with rapid growth in its online and mobile app sales.

This turnaround in the company’s fortunes seems to be based on a number of factors. First, its popular click-and-collect service provides customers with a winning combination of physical locations where they can collect orders and, more importantly, receive advice from customer assistants – something that online giants like Amazon and eBay simply can’t offer, despite having online recommendation and rating tabs.

These physical stores are therefore likely to remain an important part of Argos’ success, at least in the medium term, even though the retailer probably won’t need quite as many bricks-and-mortar sites as it did in the past. 

Getting this balance right will be crucial, because Argos will need to make sure that its cost base and infrastructure is shaped appropriately to meet the changing demands of the modern consumer.

To this end, the company has already announced plans for a £300m investment strategy to revitalise the brand. This involves replacing the famous laminate catalogues in stores with touchscreen computers, rolling out new apps for smartphones and tablet computers, offering more exclusive products and closing stores as leases expire if appropriate.

However, it’s certainly not all good news coming out of Home Retail Group at the moment. Even though Argos may have helped to slow the decline in the group’s benchmark pre-tax profits to 10%, its pre-tax profits of £91m are still a far cry from the figures being released back in the company’s heyday.

Unlike Argos, Homebase seems to be feeling the pinch from both the sluggish economy and cold weather in the UK. Like-for-like sales for Homebase fell by 4.9% and operating profits halved to £11m, which probably indicates that Homebase may need some ‘home improvements’ of its own.

Whilst Argos’ flexible, convenient and consumer-friendly model helps to underpin its success, it seems like Homebase is still operating in another era, with shelves piled high with stock and a distinct lack of cohesive merchandising.

It’s an expensive mistake to make. Homebase can’t simply rely on big-ticket purchases alone anymore; the tough economy and added pressure on disposable income means that many customers are being tempted to put purchases like these on hold – unless they can be persuaded otherwise.

And perhaps that’s the real reason why Homebase continues to be a thorn in the Home Retail Group’s side. It’s still struggling to create a strong identity and value proposition for itself; it’s certainly not a B&Q or a Wickes, and yet it’s neither a Dwell nor an IKEA.

Home Retail Group would probably love to replicate some of Argos’ success with Homebase. However, in order to do that, it will need to begin by refocusing its current offering to give consumers much greater clarity and a compelling incentive to buy.