Sainsbury’s could see Argos gamble pay off
THE UK’s second biggest supermarket chain, Sainsbury’s, released a trading statement covering the nine weeks to March 11, last Thursday.
With Mother’s Day and Easter both absent from Q4 this year, like-for-like sales in Sainsbury’s Retail division dropped 0.5 per cent, with the fall most apparent in General Merchandise.
However, including another positive contribution from Argos, which delivered like-for-like sales growth of 4.3 per cent, the group managed to grow total like-forlike sales 0.3 per cent.
Argos has been part of the group since September’s £1.4billion acquisition of Home Retail. Back then, sales growth in the catalogue retailer was negligible, which makes the recent results all the more impressive. There are already 41 Argos stores in Sainsbury’s supermarkets, and the group plans to open more in its bigger superstores in the future. As Sainsbury’s supermarkets swallow up nearby Argos stores, the store-within-astore model should help reduce annual costs by £75million per annum. The combined group is targeting overall savings of £500million a year by 2017/18.
The integration has other benefits, too. With over £4billion of annual sales, Argos offers Sainsbury’s the chance to increase its exposure to the non-food market. Its delivery network could boost the group’s online offering, and it could also drive footfall to the group’s superstores.
Yet recent events mean its supermarkets are in need of a boost. While online and convenience offerings have proved popular, its larger stores have struggled.
Market share is being lost, particularly to Aldi and Lidl. Sainsbury’s has seen operating margins drop over the past few years. It trimmed the dividend in 2015 and 2016. Another cut in full year results in a few weeks’ would be no surprise. But the Argos deal is no magic bullet. It has struggled to compete with rivals such as Amazon. Sterling’s weakness, raising the cost of imports, brings another headwind.
Sainsbury’s CEO Mike Coupe clearly understands the challenges presented by the deal. So far, it seems to be going well, but investors will want to see tangible improvements in the core business.
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