Steinhoff’s bid to acquire Argos demonstrates the strength of the general merchandise retailer, despite its recent trading troubles.
Argos’s legendary ‘laminated book of dreams’ may be reaching its sell-by date as smartphone searches replace leafing through catalogues, but the retailer’s general merchandise strength apparently has not.
Whether Sainsbury’s or Steinhoff gets hold of Argos, each sees opportunity despite the Home Retail-owned business’s travails.
For JS, a deal would create a complementary food and general merchandise multichannel giant with the distribution and technology firepower to compete more effectively with rivals such as John Lewis and Amazon.
The grocer believes both partners’ reputations for value and quality will appeal to shoppers and sees opportunity in space rationalisation following trials of Argos branches in its shops.
Steinhoff has not gone into detail about why Argos would be a good fit for it. However it has an overt value retail positioning and Argos’ core customer base would not be dissimilar to its own.
“A deal with Steinhoff would add significantly to its retail clout in Britain as well as bringing sourcing synergies”
There would be clear synergies with Argos in its main household goods and furniture categories.
It owns for instance Harveys in the UK which, broker Nomura observes, speaks for a 3.7% market share compared to that of Argos at 6.6%.
So a deal would add significantly to its retail clout in Britain as well as potentially bringing sourcing synergies.
At 175p per share Steinhoff is offering more for Argos than Sainsbury’s – unless the grocer ups its offer – and it would be an all cash deal.
All the interest has been good news for shareholders of Argos parent Home Retail. At the time of writing, its shares were trading at 172.3p. In mid-December the shares were as low as 90p.
That was because Argos, despite the good modernisation work spearheaded by Home Retail boss John Walden, has not been finding life easy.
Home Retail’s Christmas trading update in January revealed that while total sales at Argos edged up 0.9%, they fell 2.2% like-for-like. The pace of change affecting it was evident in the fact that traditional walk-in sales plunged 13% in December while digital revenues advanced 10%.
While Argos has been adapting, the world is still changing rapidly around it.
For Argos, a tie-up with another retailer might be the boost it needs to maintain and increase its relevance.
And while Walden may be confident that Argos would have a future without a deal, shareholders will snap up the money on offer.
Now that there is more than one would-be buyer at the table, it is more likely than ever that Argos will be sold.
Given that in the not so distant past many observers questioned whether it could survive, the bid interest shows that although Walden’s work may be unfinished and the journey has not always been smooth, he has done enough to ensure the Argos name is not consigned to the past.