Sainsbury’s pulled off the biggest retail acquisition of the year in 2016 when it snapped up Argos owner Home Retail Group in a £1.4bn deal.
Sainsbury’s Argos boss John Rogers will take to the stage at Retail Week Live to re-live the story so far and discuss what the future might hold for the enlarged business.
Rogers touched on similar subjects when he spoke to Retail Week in August, one year on from the acquisition.
When Sainsbury’s agreed to acquire Argos’ former owner Home Retail Group in the spring of 2016, there were sceptics aplenty.
Trepidation in the City was rife as analysts voiced fears about the potential for Sainsbury’s to take its eye off the grocery ball, about the fact it was opening itself up to a new stream of general merchandise competitors such as Amazon and John Lewis, and about a perceived lack of crossover between the Sainsbury’s and Argos customer bases.
“We are concerned that the Argos business is not robust, that profitability might weaken before improving and that the integration process could be painful and protracted,” one analyst bluntly concluded at the time.
But as Sainsbury’s Argos celebrates its first birthday this week, critics of the £1.4bn deal are being proven wrong.
While the retailer’s executive team are refusing to “call victory” one year into an initial three-year integration plan, there are many positives for them to draw confidence from.
Despite a wobble during the golden quarter, when food sales dipped into negative territory year-on-year, Sainsbury’s core grocery business has held up fairly robustly amid the resurgence of Tesco and Morrisons.
Argos’ sales have moved in the right direction and its digital and fulfilment capabilities have helped Sainsbury’s ramp up its own offer, with one-hour home delivery and 30-minute click-and-collect on grocery orders now in place in London via the Chop Chop app.
The business also revealed this week that Argos click-and-collect points will be rolled out to 100 convenience stores, while larger Argos digital stores continue to open in Sainsbury’s supermarkets ahead of schedule – 250 should be operational by March 2019.
Retail Week visited Sainsbury’s Argos customer support centre in Coventry’s Ansty Park, where staff from across its stores and property divisions were celebrating a milestone en route to that goal – the opening of the 100th Argos digital shop-in-shop inside a Sainsbury’s supermarket.
“I think we’ve got significant opportunity to be able to continue to invest in our price position, to continue to drive savings through the operating model”
John Rogers, Sainsbury’s Argos chief executive
It is no wonder that Sainsbury’s Argos chief executive John Rogers can afford to crack a smile as he looks back on a successful first year at the helm.
“We’ve had a really good start to what is, in essence, a two- to three-year integration programme, so let’s not get ahead of ourselves,” Rogers diplomatically tells Retail Week.
“But we are really pleased with progress so far, particularly on the roll-out of our store-in-stores.
“We said we were going to do 250 and we’re going to do those six months earlier than was planned.
“What’s next? I’ll be careful what I say, but I think we’ve got significant opportunity to be able to continue to invest in our price position, to continue to drive savings through the operating model.
“There’s a lot of work going on at the moment to improve our availability and we’ve been talking about rolling out 100 click-and-collect points in convenience stores.
“There is a myriad of initiatives and programmes where we are really confident we can take the business forward.”
Little and large
One initiative that has already got the enlarged retailer motoring is the work on its store portfolio.
Spearheaded by the group’s director of property Dean Clegg and his team, Sainsbury’s has shuttered some Argos stores, refurbished others into its digital format and relocated many, in different guises, inside supermarkets.
The grocer has launched “micro” Argos digital implants as small as 400 sq ft into some of its larger sheds, such as its store in Bodmin, which offer a more limited selection of stock.
At the other end of the scale, one of its newest shop-in-shops in Scarborough had two Argos stores relocated into an 8,500 sq ft space on the mezzanine level of the town’s Sainsbury’s supermarket.
“We have a weekly steering group where we discuss what the best solution is so that in every single town or geography, we will get to what is the right proposal for that location,” Clegg explains.
“You can see in terms of the split between infills and relocations what we’ve done, it’s not just a case of relocating all the Argos stores into Sainsbury’s.
“In many, many locations it is absolutely right to have a high-street- or a retail-park-based Argos that is serving its customers the right way.”
Rogers also acknowledges the “huge opportunity” that remains within the standalone Argos business to boost its market share and enhance the customer experience, particularly around its ecommerce platform.
But according to Sainsbury’s Argos’ new marketing director Gary Kibble, there is also work to be done on consumer perception of the brand to help it reach a wider audience.
Giving his first interview since joining from Mothercare two months ago, the former Shop Direct executive tells Retail Week: “If you look back over history since its creation in the 70s, Argos has been positioned as a value brand, but it means so much more to consumers than value – that is just one component of a much broader offer.
“We can reposition the brand away from the value sphere. We’ve got a bit of work to do there, but that’s a real opportunity to make our mark as a marketing team”
Gary Kibble, Sainsbury’s Argos marketing director
“We can reposition the brand away from the value sphere. We’ve got a bit of work to do there, but that’s a real opportunity to make our mark as a marketing team.
“History will tell all of us that it takes a long time to encourage customers to reappraise brands. Notwithstanding that, every journey starts with a step.”
Far from resting on his laurels one year into the plan he drew up alongside group chief executive Mike Coupe, Rogers is already sizing up future stages of the Sainsbury’s Argos journey.
As consumer shopping habits continue to evolve at pace and the shape of the retailing landscape shifts just as seismically, Rogers believes Sainsbury’s Argos can adapt further in the coming years to meet such demands.
One way in which he hints at doing that is through a subscription-based shopping model.
“There is a lot of talk at the moment about almost prescription-type shopping on staples like flour, sugar, washing powder.
“You very much could operate on a model where they are automatically renewed, whether that’s an online delivery to the home or whether that’s something that when you come into our stores, they are automatically available to pick up,” Rogers predicts.
“We’ve always said it was probably not something we were going to do in the first couple of years of bringing the businesses together and that it was a slightly more medium to longer-term opportunity.
“But I really like the idea of a subscription-based model where you almost have a regular update as to what inventory is in the household. As you’re running out of washing powder, it automatically renews and in your next delivery you get the product you are just about to run out of.
“That type of model really lends itself to the Argos infrastructure and digital capabilities. I’m not saying we’re going to do that in a year’s time or two years’ time, but I would think certainly within a three- to five-year timeframe, we will be thinking about these models.”
Beating off Amazon
Something more immediately on Rogers’ mind is the threat posed by Amazon.
Despite its Amazon Prime and Prime Now propositions, Rogers believes Sainsbury’s Argos is already beating the US etail titan on the same-day delivery battleground, but is alert to the increasing menace it poses in grocery after it completed its $13.7bn acquisition of Whole Foods on Monday.
Asked if its same-day delivery proposition – including Argos’ Fast Track fulfilment offer – represented the main way it could beat Amazon, Rogers’ riposte is bullish.
“I think so. A lot of people talk about next-day, but I think same-day is becoming increasingly important,” he says.
“Nobody can beat us same-day in terms of our model, because we operate a hub-and-spoke store network which allows us to get product quite close to the customer and enables us to do same-day much more economically than others.
“Same-day delivery is where Sainsbury’s Argos comes into its own, both in terms of cost to serve and ability to get products to customers quickly. I don’t think anyone can beat us in that contest.”
But, after launching AmazonFresh in London and inheriting Whole Foods’ nine UK stores, could Amazon eventually topple Sainsbury’s in its grocery retailing heartland?
“They have certainly got some tough competition in the shape of, I would argue, some of the best food retailers in the world, so we will certainly give them a run for their money,” Rogers says, laying down the gauntlet to the online Goliath.
“You can never be dismissive of Amazon, which means that we need to be on our toes, continuing to invest, continuing to focus on our customers and making sure we delight them in every shopping experience, because competition out there is tough.
“It’s always been tough, it’s not like this is something new. We compete with Morrisons, we compete with Tesco, we compete with the discounters”
John Rogers, Sainsbury’s Argos chief executive
“But it’s always been tough, it’s not like this is something new. We compete with Morrisons, we compete with Tesco, we compete with the discounters – there isn’t a month in my 12-year career with Sainsbury’s where we haven’t talked about this being a very tough market.
“So I don’t think you can gaze into the crystal ball and predict where we will be in five to 10 years’ time, but I know we will be really focused on customers, we will be really focused on our data and there will be increasingly much more technology-driven businesses.”
Pondering that glimpse into the future, Rogers is off to join Kibble, Clegg and dozens of Sainsbury’s Argos staff on the lawn to celebrate the present, cutting the cake and toasting an impressive first year for the business.
If Sainsbury’s Argos can continue to invest and innovate at a similar pace it has demonstrated to date, there could be plenty more celebrations of this ilk to come.
Habitat’s comfy new home
While much of the focus centres on Sainsbury’s plans for Argos, the other retailer it acquired in the Home Retail Group deal, Habitat, has received much less publicity.
When the £1.4bn acquisition was completed, Habitat’s future was uncertain. Many expected the homewares business to be sold, or even to fade into darkness.
Instead, Sainsbury’s has opened six mini Habitat shop-in-shops – seven if you include one in Leeds that lies next door to one of its supermarkets – and has plans for 10 more.
There could even be scope to build a standalone Habitat presence.
“We are very much in that place of trial and learn,” Sainsbury’s Argos director of property Dean Clegg says.
“If an opportunity comes along in terms of a standalone Habitat, that’s also something we would consider, but it’s very early days”
Dean Clegg, Sainsbury’s Argos director of property
“We are learning lots on those stores in terms of how they trade and we are looking at whether or not we would expand that further.
“If an opportunity comes along in terms of a standalone Habitat, that’s also something we would consider, but it’s very early days in terms of really learning about the brand and understanding the customer demographics.”
Sainsbury’s Argos marketing director Gary Kibble has been impressed with the brand since joining the business two months ago.
“Habitat is one of those brands that you can’t help but feel connected to – it has a very strong point of view, it has very strong handwriting from a design and style perspective,” Kibble says.
“It’s also a very important brand that may present an opportunity for further leverage. How do we use the power of both Argos and Sainsbury’s to catapult Habitat to a much bigger and broader audience?”
If Sainsbury’s Argos can answer that question, Habitat’s future could be bright.
Retail Week Live 2018
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