Argos’ popularity

20th February 2016

Who would have thought Argos could be so popular? There is genuine nostalgia around the fight to own the business. First is the idea of simply getting bigger in retail. The days when investment bankers had a great idea one day and pulled of a massively lucrative transaction a few days later seemed to have gone forever. They should have in my view, mainly because of the massive structural shifts emerging in the industry. Their impact on competitive advantage or the lack thereof, mean the factors determing success have changed fundamentally. Being big is no longer the defensive asset it once was. In fact it is no longer the economic or performance asset either.

Most UK retail businesses today are too big. They have too many stores, those stores are generally too big, and they carry bloated inventories and ranges. They are strategically slow and have rigid and unresponsive operating models – their smaller, leaner and more agile rivals are taking their customers and market share. So many of the giants of our retail industry are being picked off in this way. I had been impressed with Sainsbury’s recent move back to its heartland of quality and provenance, building on an edited range more focused on its core customers. This is the right response to discounters who address a different set of customer needs. My concern is that buying Argos would divert management, add problematic complexity and scale, and significantly expose the company to unexciting and already overcrowded non-food markets in which it does not have a great expertise to add. The emergence of Steinhoff is, I hope, an opportunity for management to think again.

As for Steinhoff, this is a group with serious financial muscle and an excellent track record in hard goods retailing. Argos is rather like the big retail beasts I mentioned earlier. It has kept the catalogue showroom format alive for decades longer than any other country, notably the USA where it was invented. However, it is a very limited model and adding some digital bells and whistles does not change this. Its trading record over the past 5 years says as much. Steinhoff has a better chance of being able to inject something into the proposition to underpin its trading going forward. In any case, I suspect that this latest development has much more to do with the prospects of the South Africa economy and the defensive attractions of the UK and pound sterling than it does about the suddenly discovered charms of Argos. Nevertheless, it might turn out to be great news for the stakeholders of both Argos and Sainsbury’s.

** RAH Advisory provides analysis, forecasts and advice to retailers, investors and suppliers to the industry. If you think we can help, drop us a line at admin@richardtalksretail.co.uk

CCOs – addressing the customer?

16th February 2016

It looks like retail is increasingly turning its attention to customers. The new kid at the C-suite table is Chief Customer Officer and recent appointments have emerged at retailers including River Island, John Lewis and House of Fraser.

There is no question in my mind that much greater customer understanding is a fundamental prerequisite of success going forward. My worry is that retail history shows that the customer has generally been taken for granted. Often just another item on a long list of items to deal with, instead of being the undisputed number one priority. This was made possible by the reality of demand exceeding supply – the classic seller’s market. That’s now flipped, we have chronic (and growing) overcapacity and it’s now unequivocally a buyer’s market. Many in the market find they really don’t understand those buyers well enough.

In a world where all too often style prevails over substance, it is critical that customers don’t merely have a seat at the table, but sit at it’s head. Whether this is achieved by appointing a CCO or some other route is less critical.

** Detailed analysis of supply, demand and the growing power of customers can be found in the premium content of this website. Get in touch for details of access at admin@richardtalksretail.co.uk