The dismal demise of BHS and resulting fall-out is a reminder that, today more than ever, retail cannot afford to stand still.
As the sands shift in grocery and across the industry more generally, the link-up represents a brave attempt to create a business that has years of success ahead of it rather than relying on past glories.
The need for change was brought home last week when Amazon launched its Fresh food delivery business.
Amazon’s promise of low prices, rapid delivery and excellent customer experience cannot be underestimated, albeit the Fresh offer is only available in limited areas of London for the time being.
But as Amazon moves ever more onto the grocers’ turf, Sainsbury’s deal with Argos could enable it to compete more effectively with the online giant – not just in food but a range of other categories, backed up by Argos’s fulfilment expertise.
Similarly, Sainsbury’s has been bolstering its own technology and innovation capabilities. It is recruiting 150 digital and technology whizzkids.
The grocer is also experimenting in one postal district (in Wandsworth, London) with an app, called Chop Chop, enabling users to order goods from a store and have them delivered within an hour. It’s a small thing, but indicative of Sainsbury’s attempts to adapt and therefore thrive.
On a bigger level, the news that Sainsbury’s finance boss John Rogers is to become chief executive of Home Retail following the completion of the deal later this year is welcome.
Rogers has played a central role in driving the tie-up, and is regarded as an astute strategic thinker.
That provides reassurance that the practicalities of putting together Argos and JS will be well executed – and the standard of execution will be at the heart of whether the deal works out or not.
“We remain fearful that the CMA will decide on a Phase 2 investigation, which could extend by six months the time until Sainsbury’s can get its hands on the Argos business”
Broker Shore Capital, which rates JS hold, observes: “As may be expected, we do not change our recommendation on Sainsbury’s following this update, noting that the future trajectory of the share price will be determined by its core grocery performance, which is decelerating, the Competition and Markets Authority’s stance on Home Retail and what and when Sainsbury’s eventually does with Argos.
“We remain fearful that the CMA will decide on a Phase 2 investigation, which could extend by six months the time until Sainsbury’s can get its hands on the Argos business, and through which Sainsbury’s will not be permitted any insight into the Argos operating performance.”
Sainsbury’s will need to be at the top of its game to both future-proof itself in the long term and be sufficiently fleet of foot to negotiate the short-term challenges that are part of daily retail life.