Argos: A born survivor

This year, catalogue store group Argos is celebrating its 35th birthday in torrid conditions not unlike the year of its birth.
Back in 1973, when Green Shield Stamps entrepreneur Richard Tompkins launched the first stores, the world seemed to be falling apart.
To the soundtrack of Bob Marley and the Wailers’ Exodus and Mike Oldfield’s Tubular Bells, Europe was in recession after oil prices soared. There was a three-day week in force in the UK and Britain’s relations with Iceland were in deep freeze as the Cod War raged.
Today, to the warblings of X-Factor wannabes, recession once again looms, the banking crisis has made Iceland a dirty word and Argos faces the prospect of harsh trading conditions in its anniversary year.
When the retailer – part of Home Retail Group – reports interims next week, analysts expect profit expectations to be met, but fear the ongoing downturn will eventually take its toll. Just last month, when it updated on second-quarter trading, Argos posted a like-for-like sales fall of 5.8 per cent – its worst performance since 1999.
But Argos managing director Sara Weller will not let the depressing high street mood dent her confidence in Argos’s strengths and healthy longer-term prospects. The retailer’s unique business model – which has taken it from first-day sales of£43,000 and 17 shops in 1973 to multichannel sales of£4.3 billion and 700 shops last year – positions it strongly for future growth, Weller believes.
Two thirds of UK households have a copy of the famous Argos catalogue, which is issued twice a year and carries just under 19,000 products. The retailer commands market-leading positions in categories ranging from beds and furniture to toasters and watches.
“The roots that were laid 35 years ago – the wide choice, the great prices – are the basis of how we do business,” Weller says. “Each catalogue is a new start,
a reinvention every six months.”
So attractive has Argos’s multichannel model proved that a host of retailers have attempted to wrest a slice of it for themselves – notably grocers Tesco and Asda. Even variety store group Woolworths had a pop, although it has since abandoned its Big Red Book catalogue.
But Weller is convinced Argos’s heritage is a key strength that puts it in a better position than rivals to adapt to the changes and opportunities of a home shopping landscape being transformed by
digital technology.
She points out that the metrics and disciplines of home shopping are very different to traditional store retailing. Argos, for instance, shoulders few of the costs associated with product display in shops that some other retailers have to carry. “A lot of retailers with higher shop costs and lower densities struggle to remain profitable. The catalogue enables us to expand our product range without expanding our shops,” she says.
Argos has been among the earliest adopters of new technologies within home shopping, such as in-store kiosks and its Check & Reserve service. Last year, online accounted for 21 per cent of Argos’s sales and the use of Check & Reserve increased by 50 per cent. “Technology has changed a lot – not what we do, but how we do it,” says Weller.
And more change is likely. She explains: “The theme in multichannel has been putting the customer in control in how they want to mix the channels up.
The way people like to shop is to choose in the comfort of their own home. Once they’ve decided what to buy, they want to get their hands on it as quickly and cheaply as possible. We’re trying to improve each step of the journey.”
Better information for customers when making their selections, such as extra product details and improved comparison tools online, and a more efficient fulfilment of orders, are among the projects on Argos’s agenda.

Value First

Hand in hand with such initiatives – and powered by them – is a strong focus on value for money. Argos has typically brought prices down significantly on re-included lines, but tighter economic conditions meant that prices remained flat in the current edition.
Increased Far East labour costs and raw material price increases are among the reasons for the freeze, following years of price benefits on the back of overseas sourcing, a favourable dollar exchange rate and technology price deflation.
Weller takes the view that flat prices, as opposed to higher ones, mean Argos is “still pretty competitive”, but acknowledges that the chain must retain its value credentials.
She says: “It’s interesting listening to our heartland families talking about how they’ve been impacted by the economic circumstances. They’re very concerned about food prices. They’re food shopping more frequently, walking instead of driving and putting off big-ticket purchases. Our top priority has to be focusing on great value and communicating that to people in the best way possible.”
As part of that drive, Argos has installed display stands for its Value range at queue points in more than 400 stores. In the past, only a few lines such as batteries were placed at the tills, but the retailer wants to generate more add-on sales and shout about its prices.
“We’ve always been very price-competitive, but we weren’t helping the customer see it for what it was,” explains Weller. “Value makes it much more clear.
The way we parcel up what we do and send a message is going to be a core part of how retailers react over the coming months.”
As well as reinforcing price credentials, she believes service is becoming ever more important. “People say: ‘When I’m short of money, I expect retailers to really fight for my business and look like they’re pleased to see me.’ There’s a big focus to engage with customers and make them feel they want to shop with us.”
In the wake of bank nationalisations in the UK and abroad and warnings that the “real economy” is on course for recession, all retailers are battling to respond.
“No one could have imagined the volatility of the last few weeks. You now have to expect the unexpected,” says Weller. “We have to assume this is the climate we’re in and plan accordingly. Everyone’s going to have to cut their cloth, but we’re in a good position to start with.”
Although the retailer is scaling back Christmas recruitment, it is still taking on about 15,000 people for the key season. By contrast, Argos’s Home Retail stablemate Homebase has had to cut jobs. Weller says there are no consultations going on with Argos employees at present, but admits: “The thing you
have to do is be flexible and manage resources in line with volumes.”
She believes Argos’s company culture will be another bulwark against the impact of the slowdown. She says that “customer focus, a will to win, teamwork, respect and people making a difference themselves” are all characteristic of Argos. “Coming in from outside, you see a very can-do culture,” she maintains. “People are not held down by the treacle of history. I’d describe Argos as a pretty competitive family.”
She has been part of that family since 2004, when she jumped ship from Sainsbury’s where she had
been marketing director and deputy managing director. Her leadership of Argos makes her, along with WHSmith chief executive Kate Swann, one of the most prominent women in a senior retail executive role.
Weller is not keen to labour any points about that, instead focusing on the attractions of the Argos role for her. “Sainsbury’s is a great brand, but this was a great opportunity to run a business. The opportunity to be the boss was definitely important for me,” she says.
She remains determined to make the most of that opportunity. She has steered Argos towards new business pastures, such as international expansion – an Indian joint venture has been running for a year – and built the core business by, for instance, overseeing a smaller store model that will allow expansion in tight-spaced London.
Although focused on riding the downturn at present, she is still thinking about the challenges and opportunities of the future. How will online develop versus catalogue shopping? It is possible – perhaps probable – that the two shopping media will have switched in importance within 10 or 20 years. And how will the challenges of home delivery be resolved? Will it ever come to the point when consumers have, as standard, secure boxes at their homes where goods can be left? “There’s a lot we need to be aware of if we want to keep pace with the customer,” Weller notes.
If there is one lesson to be learned from Argos’s 35th birthday, perhaps it is that if the retailer could be born in such a difficult year as 1973 and go from strength to strength, then it should be well positioned to ride out the turmoil of 2008.

Argos: 35 years at a glance

• 1973: chain founded

• 1975: weekly sales reach£1 million for first time

• 1978: Argos and Green Shield Stamps catalogues combine

• 1986: opening of first superstores

• 1990: IPO

• 1992: sales hit£1 billion

• 1995: launch of web site and first call and collect service

• 1999: nationwide home delivery service introduced

• 2002: launch of Quick Pay kiosks and Text and Take
  Home service

• 2007: Argos’s web site is most visited high street retailer site over Christmas