Following the £1.4 billion takeover of Home Retail Group, Argos has new shareholders with high expectations. So where can it find growth?
Retail Week has documented the successful pivot of Argos to compete directly with Amazon and in 2015 reported that Argos was the first multi-channel retailer to achieve £1bn in m-commerce revenue.
Our own research team believes Argos, whilst still some way behind Amazon, attracts far more traffic than its UK rivals and looks like the only competitor that may be able to pull back the significant traffic advantage currently held by Amazon.
This scale is even more impressive when you factor in that the number of products sold on Argos is 33,000, a fraction of the reported 200 million available on Amazon.co.uk.
So is the opportunity for growth in range extension, and if so, how can Argos leverage its position while not weakening the balance sheet? The answer lies potentially with a marketplace.
What is a marketplace?
A marketplace allows third parties to sell their products through your website.
There are a range of commercial models underpinning this set-up, but broadly the marketplace owner invests in driving traffic to the site and recoups that investment by taking a percentage of the sale.
"The introduction of a ‘marketplace’ at Amazon has transformed its revenue. In 2015 it reported that marketplace products represented almost 50% of the revenue from Amazon.com"
The third party gains from far greater sales than it could achieve using its own brand and resources and the marketplace owner gains additional revenue without any of the costs of stock, warehousing or logistics.
The introduction of a ‘marketplace’ at Amazon has transformed its revenue.
In 2015 it reported that marketplace products represented almost 50% of the revenue from Amazon.com.
The approach has been adopted – to varying degrees of success – by UK high-street stalwarts such as Halfords and Game as well as ecommerce pure-plays such as Asos and notonthehighstreet.com.
What are the key issues Argos would need to consider?
1. Category and product requirements
Argos’s range of product types is significant but there are key online categories missing – Audio and Video and others where it is significantly underweighted; it offers fewer than 100 book titles, for example.
It needs to work out where the growth opportunities are and where, through offering additional products, it could increase the value of the average shopping basket.
2. Positioning
Amazon’s categories stretch from value to luxury. Argos places itself much more in the value segment of the market.
It would need to decide what its marketplace extension would be. Can it become the place where value-conscious shoppers can get everything they want in one place? Or could it develop a premium proposition?
3. Pricing strategy
To whom you give the ‘buy’ button is one of the trickiest questions, but Argos may be able to create an opportunity here.
Many Amazon merchants would argue that, while Amazon is the main marketplace, it is a greedy partner.
It doesn’t just charge high fees but can also snatch the buy button away from a merchant if a product is selling well and Amazon can source it direct.
Argos could develop a strategy where it automatically guarantees the buy button to merchants with additive stock and keep its fees below Amazon's.
This may encourage merchants with lower-margin products to list with Argos – especially given the traffic it attracts and the current brand positioning.
4. Promotion strategy
Being disciplined by adopting an ‘additive stock only’ approach would also allow Argos to be focused on promotions that drive a mutually beneficial return. Clever in-store promotions can also help drive sales.
The only challenge is how it creates simple communications that exclude marketplace stock from its click-and-collect and same-day delivery propositions.
5. Merchant recruitment and management
This is a key capability in which it would have to invest. It’s not too difficult to recruit merchants, its much more difficult to recruit the right merchants and to partner them such that you both make a good margin.
Amazon’s merchant service is a sophisticated proposition, but it’s not without its flaws and it has a contract that has come out of the sharpest legal minds it can afford. There is an opportunity out there for a proposition that treats merchants in a different way.
That could create a serious competitor: and if anyone can do it, Argos can. If anyone needs it just now, it is Argos’s new owners and their shareholders.
James Hammersley is the co-author of Leading Digital Strategy. He is a founding partner of Good Growth, and has worked with O2, The Economist, Game, Ann Summers, The Guardian, Barclays, Bupa and Manchester United FC. For more information, visit goodgrowth.co.uk
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