On the one hand Argos is delivering profit growth, mostly from cost management activities rather than a new digital strategy, and on the other hand Homebase are battling against a shrinking customer base coupled with tougher competition.
So does that mean that one retail strategy is working and the other isn’t? No not really. Neither retailer, both owned by the Home Retail Group, is shy of trying something new in the face of a shifting market.
Argos are going digital and opening as concessions in Sainsburys, as well as being a collection point for eBay customers. It’s move into digital formats still feels gimmicky and although feels right for the market doesn’t yet look right on paper. Digital sits on top of Argos’ strong distribution model comfortably and makes strategic sense but it’s no surprise that we are still lacking any evidence that the new digital format is delivering any material benefit.
The capital requirement for a rollout means it will take time to gain traction and gives the retailer a window of opportunity to refine the format and work out how to make it profitable. But when was a new format ever profitable in the first year? It takes time and tweaks and scale before profit can be realised, that’s if it is the right format at all. Some formats sink without trace, consumed by the next new idea.
We cannot knock the stream of innovation and modification that flows from HRG HQ, new ideas pave the way to capture customer’s imagination, and decisive plans to fix what is broken are played out. Homebase took the bold move last year to close about a quarter of its estate and reduce range in the remaining stores to make room for the concessions to build its lifestyle credentials.
When the market moves, the retailer must move with it, in fact ideally ahead of it which is what Homebase is attempting to do. How profitable the remaining store portfolio will be is yet to be seen, but whatever the result, it won’t just be as a result of the store closures and concessions, HRG will have a few more ideas to play out in the coming months.
The story this year was a tale of 2 different profit trends, but there is every possibility that the trends could both be reversed next year. Homebase can return to profit growth by cutting out the rot and reconnecting with what customers want and Argos could expand digitally, which if it follows the online grocery profit model, could take some years to deliver profit.
If you would like to chat about any aspect of your retail offer, formats, space productivity or estate, Retail Remedy’s team of consultants are more than happy to listen and then help you take the next step. Get in touch.