Argos was the surprise star performer for Sainsbury’s over Christmas, driving strong general merchandise sales growth. After years of underperformance, is Argos back at its best?
On a day when Sainsbury’s upgraded full-year profit expectations to the top end of its guidance and delivered festive sales increases across categories, chief executive Simon Roberts was confident the supermarket giant had “delivered the best possible Christmas for customers” in the face of inflationary pressures.
Core grocery sales were up 7.1% over Christmas, while the December cold snap helped drive an uptick in Tu clothing sales, which jumped 5.1%. However, general merchandise was the star category for Sainsbury’s over the period, up 7.4%.
“This Christmas, Argos really came into its own,” Roberts said. “It was the first year that we’ve seen sales in Argos over Christmas week come in ahead of Black Friday week.”
Last November, Roberts tipped Argos to play an important role for Sainsbury’s at Christmas. But there is no doubt that Argos outperformed even the wildest expectations over the festive period.
What was behind its festive success? And what might it mean for a much-maligned general merchandise sector more broadly?
Back in stock
While Roberts’ tenure at the helm of Sainsbury’s has been marked by an unabashed food focus, he has always denied that Argos’ underperformance in recent years has been down to a lack of focus on that business.
Argos had previously delivered five straight previous quarters where sales shrunk from the first quarter of this financial year going all the way back to the beginning of 2021/22. It has now delivered back-to-back quarters of sales growth.
One of the key pain points in recent years for Argos, and general merchandise more generally, has been a lack of product availability due to a number of issues that stem from the pandemic and the shutdown of much of the world’s economy.
Over this Christmas, however, Argos was able to fix its availability issues, which Roberts says played a huge role in its success.
“This Christmas, Argos had strong availability in the fastest-selling products such as air fryers, clothes dryers, tablets and mobiles”
Simon Roberts, Sainsbury’s
“In general merchandise, sales continued to reflect the improved availability that we’ve been working towards. You’ll remember last year was particularly challenged on availability and we saw that really come through in consumer electronics,” he said.
“This Christmas, Argos had strong availability in the fastest-selling products such as air fryers, clothes dryers, tablets and mobiles,” he added. “While it was hard to stare into the crystal ball [back in November], we knew we had some weak comparables on availability and we were well placed to take advantage of them.”
Sorting availability issues meant Argos was able to kick off the golden quarter with a strong Black Friday event and was able to maintain that into Christmas.
Roberts said sales of technology were boosted by the winter World Cup, while its Black Friday awareness campaign drove 120 million visits to Argos’ website over the period and saw 15,000 orders per hour being processed on the day itself.
Convenience is king
During the pandemic, Sainsbury’s increasingly looked to close standalone Argos locations in favour of moving them into click-and-collect points inside its supermarkets. While swathes of Argos stores have closed, its customers still have 1,100 “physical points of contact” with the brand, with many of them now sitting alongside Sainsbury’s core food offer and its other brands such as Habitat and Tu.
With customers returning to stores in droves over the past 12 months, convenience is developing as a key driver for Argos shoppers, particularly over a festive period blighted by Royal Mail strikes, which made online deliveries harder to judge.
“We saw customers really rely on our Fast Track and click-and-collect services during the period, when they couldn’t rely on the postal service during Christmas”
Simon Roberts, Sainsbury’s
“We saw customers really rely on our Fast Track and click-and-collect services during the period when they couldn’t rely on the postal service during Christmas,” said Roberts. “Visits were up 50% in Argos store-in-stores during Christmas week and that was a real function of people wanting certainty and convenience of being able to get what they wanted and get it to people they wanted to get it to.”
The store-in-stores also allowed customers to save on another precious commodity at Christmas: time. Roberts said customers would often come into a Sainsbury’s to do the big shop and organise to pick up some gifts while they were there. “It’s just super convenient, isn’t it? And we saw customers really buy into shopping that way.”
Value focus
In the past, Argos has always been seen as a value brand and amid a historic cost-of-living crisis, Roberts was keen to reinforce that proposition over the festive period.
“Argos is seen by customers as such a strong value brand,” he said. “Customers were really careful about where they spent their money.
“They wanted to come in and see the deals and offers that we had and compare those to others to help make their budgets stretch as far as possible. It’s much easier to do that when you go into a shop and see it all.”
While Sainsbury’s main price investment focus has been on food, Roberts said general merchandise has seen investment as well. He thanked general merchandise suppliers in particular “because they really supported us this Christmas, with more stock in the key price categories than our competitors”.
Despite all this, Roberts said Argos also experienced some price inflation across its products, which helped strengthen revenues even as volumes dropped in some areas. While this has been a benefit for the group’s bottom line, the retailer is acutely aware of the pressures that it is placing on customers.
To that end, chief financial officer Kevin O’Byrne noted some “chinks of light” on inflation coming through this year. “Some of the commodity prices are coming down, as is the price of freight as there’s less demand across the world. There’s some good news on the inflation front,” he said.
Can Argos keep this run going? It is hard to say and its exposure to discretionary spending may prove a hindrance as the year wears on. However, after back-to-back strong quarters, Argos – like the wider general merchandise category – suddenly looks harder to write off.
While some of the reasons behind Argos’ Christmas miracle may be specific to its wider role in the Sainsbury’s group, its unexpectedly strong festive performance will have raised hopes of similar results from some of the category’s bigger players, such as Currys, as well as other retailers in home, electricals and tech.
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