Argos is in talks to open “five or six” small format stores in London this financial year as it aims to boost its multichannel offer.

John Walden, boss of Argos owner Home Retail, said the shops will cover between 3,000 sq ft and 5,000 sq ft, compared to the usual 15,000 sq ft London store.

He said the traditional larger stores are harder to find and more expensive, adding that the new format “opens up more opportunities for us”.

Walden said he will also open a “small version of Argos” in 20 Homebase stores next year.

Walden, who took the helm in March, succeeding Terry Duddy, said the London stores will leverage the retailer’s new Hub & Spoke system and have stock delivered from larger stores in the area, meaning they do not need as much storage space. Hub & Spoke will be rolled out to the estate in the current financial year.

Argos will also ramp up its delivery offer. Walden said the retailer leads on click and collect, and he wants to do the same in home delivery.

“Fulfillment is an emerging competitive ground,” said Walden. “It’s no longer a differentiator to claim the number of products you sell or to fight on price.”

Walden believes Argos can lead on home delivery by launching a ‘hub to home’ delivery service – where home deliveries are fulfilled from store – and also next day delivery on bulky items. Shoppers will also be able to choose narrower home delivery time slots. “We’ll be very competitive in fulfillment,” said Walden.

He said Argos can differentiate itself from high street rivals by its superior digital offering, while compete with Amazon by exploiting its “local network and local people”. He wants to promise a speedier and more convenient delivery than the etail giant by utilising Argos’ Hub & Spoke initiative and the fact it has “smiling human beings” in store to make the shopping experience more appealing.

“That’s the advantage we hope to push,” said Walden. “We’d like to think shoppers will think lockers don’t make sense when we’ve got small stores.”

Argos will also revamp its digital offering by allowing more payment options, improving search and allowing real-time stock availability by location.

“Digital is critical,” said Walden. “The march continues in terms of its impact on traditional retailing. Consumers are better informed, and know more about the product than the people waiting on them.

“Mobile is becoming the tool of choice. Click and collect has come of age. At some point it will surpass home delivery as the preferred option in the UK.”

As part of its digital push, Argos will open a further 25 digital format shops after a six store trial which launched last year. Walden said he was pleased with the trial so far, which has received “very strong customer feedback”.

As part of the transformation of Argos, the retailer is launching two ‘power brands’ which it will push resources into. One is a new home brand that will launch this year, the other is an existing toy brand which it wants to further push.  It is also launching 15,000 new lines this year on top of the 9,000 launched last year, with a particular emphasis on more aspirational brands.

It will aim to consolidate its existing 40 own brands, reducing them by around 40%.

The news comes as Home Retail revealed Argos’ benchmark operating profit increased by 12% to £112.3m in the 52 weeks to March 1. Like-for-like sales were up 3.3% and total sales increased 3% to £4.05bn.

Homebase benchmark operating profit surged 71% to £18.9m. Like-for-like sales increased by 5.9% while total sales were up 4.1% to £1,489m.  Walden said that while his key priority was Argos -  because of its impact on Home Retail’s valuation and its size – a focus for him has been Homebase’s peak trading.

However, he did not rule out selling Hombase at some point. “There’s nothing that I would or wouldn’t consider,” he said. “I honestly don’t have any preconceived notions. That’s not on the table at the moment, but there’s a lot of options that I suppose are possible, as I look into the business.”

Walden said Homebase is a digital leader in DIY, a sector which has traditionally seen low penetration of online sales.  In the year Homebase multichannel sales jumped 53% and now represent about 7% of overall turnover. “Homebase is the relative market leader in this space,” said Walden.

He insisted that Home Retail’s 1,057 stores remain a “core component of its multichannel offer”.

Despite the rise in sales and profits, Walden remained cautious on the outlook. “It’s hard to read the economy at the moment. Last year was challenging because it was up and down.”