Home Retail to reinvent Argos to stem profit fall
LONDON (Reuters) - Home Retail (HOME.L), Britain's biggest household goods retailer, will reinvent Argos stores to allow shoppers to pick up pre-paid goods in less than a minute, as it trials new initiatives to reverse half a decade of profit falls.
The group, which also owns the Homebase DIY chain, posted a 10 percent fall in 2012-13 profit, a fifth straight decline, and said it did not expect any improvement any time soon as consumers fret over job security and a squeeze on incomes.
It wants to redesign the 737-store Argos from a catalogue-led business to a digitally led business by ditching the famous laminated catalogues and replacing them with touch-screen computers. Stores will also be wi-fi enabled so that customers can use their smartphones and tablets to browse and buy goods.
Argos, which faces stiff competition from online rivals and supermarkets, is targeting a 15 percent rise in sales to 4.5 billion pounds by 2018.
Chief Executive Terry Duddy said the new format Argos stores, to be trialled in the north east of England before Christmas, will have a fast-track collection service for goods purchased online or through a mobile device.
Other initiatives include a new distribution model to give customers more product choice by allowing local stores to have online orders fulfilled by larger regional stores that hold more stock.
"Argos' transformation plan has some promising aspects, but if it is to sustain its current levels of performance and stand out as others replicate and better its model, there remains plenty of work to do," said retail market researcher Conlumino.
Home Retail made an underlying pretax profit of 91 million pounds for the year to March 2, in line with company guidance but down from the 102 million pounds in the 2011-12 year, which itself was a 60 percent fall on 2010-11.
Group sales were broadly flat at 5.48 billion pounds, though the firm did win market share.
Shares fell 3.7 percent to underperform the broader market.
Home Retail has been particularly hard hit because its mainly low-income customers have suffered most, and because it faces intense competition from specialist stores, supermarkets such as Tesco (TSCO.L), and online players like Amazon (AMZN.O).
"We think that there is too much for Argos to do, digital disruption will change everything in the next five years and that the competition is too fierce and nimble," said Panmure Gordon analyst Philip Dorgan, who rates the stock a "sell".
Though operating profit at Argos rose 6.5 percent to 100.3 million pounds, that was still under half the 219 million pounds made in the 2010-11 year.
It has, however, delivered three quarters of like-for-like sales growth, driven by robust demand for tablet computers.
At the 336-store Homebase business operating profit more than halved to 11 million pounds. The chain has struggled as constrained consumer finances has meant delayed home improvement projects, while weather patterns have also been unhelpful.
(Reporting by James Davey, Editing by Brenda Goh and Louise Heavens)
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