It is clear that there is a recalibration in the supermarket profit margins underway, and the wise should realise that this is a sea-change.
Sainsbury’s has looked into the future and seen the inevitable erosion of margin caused by price recalibration.
That’s a big part of its decision to buy Argos, which gives it a massive hike in the margin-rich area of non-food and also helps in the future of same-day delivery systems.
It all sounds very forward thinking - and it is - yet we think they are missing a trick.
In order to make more profit, you have to sell a greater number of higher margin goods, but without over-buying and having to discount.
It also has a great online portal and a just-launched premium range that looks fantastic.
Still, every time we go into a Sainsbury’s store they appear to be playing at it. This impression is supported by the range's first-ever fall in sales this week.
The displays look like an afterthought, delivered by a grocery merchandiser on unsuitable equipment with nothing browseable in the majority of locations.
Even in the early days of George, Asda learnt that if you are selling clothing you have to have some authority in visual merchandising.
On countless visits, I see people simply bypass these aisles and nothing seems to draw them in.
Buying is unevenly distributed, so that stores are not supplied with a good range of styles and sizes. Head office should be sorting this out - it could be so much better, in aspiration and in operation.
Sainsbury’s always defends its position by saying it’s something its working on and the online business is booming. Great, we know that.
We also know that if this was a deli or a produce section or a bakery, such inconsistent operational standards would not be allowed to be placed in front of customers in Sainsbury’s stores - they would be sorted quickly.
All of which leads us to believe that Sainsbury’s is content, at present, to watch this potential enhanced profit slide out the door.
Sainsbury’s wants to achieve £1bn sales by 2020. It currently turns over £800m and is the seventh biggest clothing retailer by volume in the UK, so it’s a feasible ambition.
But with only 160 of Sainsbury’s stores running the full Tu range, there’s seemingly a startling lack of ambition to make good on this aim.
No doubt there are many things going on in the offices at Holborn that are part of the larger strategic move with Argos. Although many think this is an unneeded distraction, we think it’s the right choice. The board have made wise and honest decisions and their long-game thinking will pay dividends.
We just think that failing to capitalise on an asset that has such potential, at a time when margins will come under pressure is, well, a bit short-sighted.
- Phil Dorrell is managing partner of Retail Remedy