Comment: Jettison Homebase to save the Argos ship

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Anyone looking through Home Retail Group’s latest results could be forgiven for thinking that Argos is the only company that the group owns.

Anyone looking through Home Retail Group’s latest results could be forgiven for thinking that Argos is the only company that the group owns. The presentation was dominated by details of the overhaul that the group has planned for Argos, including news that it plans to close at least 75 of its 700 shops over the next five years.

As part of this ‘five-year transformation plan’, Home Retail Group claims that Argos will be reinvented as a digitally-led business, focusing on online sales.

Details of this plan probably accounted for 95% of the entire briefing, leaving just 5% for poor old Homebase which, in my view, is a much bigger problem for Home Retail Group, even if the company doesn’t yet see it that way. In the press release that accompanied its results, Homebase was mentioned 38 times, compared with a whopping 108 mentions of Argos.

While it’s all well and good to wax lyrical about the company’s plans for Argos, it seems that Home Retail Group has completely lost its way with Homebase, which saw sales decrease by £50m compared to last year. To put it bluntly, the stores are a mess, and there seems to be no clear strategy or organisation at all when it comes to store layout. Not only are customers likely to come across random pallets of products lying all over the place, but the brand is also devoid of any clear identity. It’s certainly not a B&Q or a Wickes, and yet it’s not a Habitat either.

If Home Retail Group is serious about saving Argos, it should think about cutting its losses and finding a sensible exit strategy for Homebase right now. Jettisoning Homebase in this way will give Home Retail Group the best chance of turning Argos around - much more so than closing 75 stores, which will barely make a dent.

This would be a very easy thing to do, as the group’s Homebase portfolio would no doubt be attractive to many buyers, thanks to its high quality real estate and vast amounts of parking space. For this reason alone, the supermarkets would probably love to get in on this deal. Sainsbury’s, in particular, would be able to step into Homebase’s shoes very quickly, as it used to own the chain, and so there is bound to be some instant synergy there. The other supermarket chains are also desperate for space at the moment, and Homebase’s strong presence in the south east of England would suit Morrisons very well.

Argos’ ‘transformation plan’ may well help the company to achieve a long-term sustainable performance and profit recovery, but only if the group can give Argos the attention it requires. After all, although its shops help to differentiate it from the likes of Amazon and eBay, they are also its Achilles heel, as so many of its high street locations are failing to make money. And that is where the real danger lies: if Home Retail Group allows itself to become distracted by problems with Homebase, which will eventually catch up with them, it could end up putting the future of the entire group at risk.