What to do with a problem like Argos?

The Sunday Times reports today (Argos has lost its way, say investors)  that the owner of Argos and Homebase faces a shareholder backlash over plans to buy back £150m of its shares. The shareholders feel that instead the company should be focussing on it;s long-terms strategy. Of particular concern is how Argos stave off the continued threat from the big supermarkets.

And you've got to admit- the shareholders have a real point. As I reported in only my last post, the big grocers are becoming ever more powerful, such that globally they now comprise 6 of the 10 top retail brands- with the top U.K. retail brand Tesco turning over an astonding £62.5 BILLION last year. Some time ago, the big grocers made a strategic move to increase their non-food offering, offering furniture, electricals, toys in store, making tentative steps toward the Argos target market...

The likes of Tesco and Sainsburys offering these goods accessibly, and incredibly competitively priced (due to their huge clout and buying power- hard negotitating, and buying in massive volumes, to drive down cost) is a direct threat to the Argos business model, and the threat continues to grow. The larger supermarkets have extended their range, and now offer much of it online (in competition with the Argos website) and with these supermarkets now offering a catalogue that is available to pick up in store and order from- the signs couldn't be clearer- they are going after the £4.3bn that Argos turned over last year.

So what can the Home Retail Group do to protect their business for the long-term? Well the shareholders suggest that new store formats and new categories of goods, neither of which are bad ideas. But as ever, it is not as simple as that. This is a question of long-term stategy. Argos will need to consider anew what their point of difference can be, when the supermarkets encroach on their existing market so. For example- HRG and Argos have the advantage of an excellent delivery network, and well-used website already in place- perhaps they will need to reposition themselves as predominantly an ecommerce retailer. This would allow them to reduce their cost-base and pass the savings on, increase their product offering with non-stocked items, and become known for beating their competitors on product range, convenience of delivery, whilst maintaining keen pricing.

Either way, without some seriously smart thinking, they won't be able to stop the vultures circling for much longer...