Why Retailers Should Watch The Proposed Sainsbury’s Argos Takeover With Interest


In November, Sainsbury’s made a £1bn bid for Home Retail Group (HRG) which was ultimately rejected. They have since made a follow-up bid for £1.3bn, which is likely to be accepted. HRG owns Homebase and Argos, so might seem like an odd target for a supermarket on first inspection, but there is a plan. If Sainsbury’s is successful, Homebase will likely be sold and rebranded as Bunnings, leaving Argos. Sainsbury’s CEO, Mike Coupe, claims that an acquisition of Argos would “future-proof” the supermarket chain, so what would Sainsbury’s gain, other than Argos’ annual £4.09bn sales, from this takeover, and why should other retailers take notice?

Customer behaviour is changing rapidly, and retailers need to be able to meet consumers’ ever-increasing expectations. Consumers now expect to be able to shop quickly online or in-store, and be able to switch between these channels seamlessly. In addition to this, shoppers want to be able to choose their own fulfilment methods - from home delivery to purchasing in-store or picking up their goods at a click-and-collect point.

Due to this change in customer behaviour, and with the emergence of fierce competitors in the grocery market, including everyone from Ocado to Lidl, Aldi and Amazon Pantry, Sainsbury’s needs to adapt. But how will buying Argos allow them to do this?

One of the key targets for Sainsbury’s is Argos’s web and delivery platforms, which are the product of multi-million pound investments. When purchasing an item from Argos before 6pm, for less than £4 you can have it in your hand by 10pm that evening. This type of service, made possible with Argos’ supply chain and logistics technologies, would allow Sainsbury’s to satisfy today’s customers’ desire for retailers to be, as Coupe puts it, “wherever or whenever” they want them to be.

In fact, in the UK, Argos is a mobile commerce giant, and was the first retailer to generate £1bn sales via mobile. This is very important to Sainsbury’s, as one in which it’s lacking is its mobile shopping experience, an area where Argos is a clear leader. With Argos’ technology, Sainsbury’s could leapfrog its competitors and gain a significant share of the new generation of digital consumers.

Another motive for the bid is that Sainsbury’s could move Argos stores into their existing supermarkets. Sainsbury’s 1,300 stores could then become click-and-collect spots. This prospect is appealing for the supermarket chain, as it could turn their supermarkets into one-stop shop destinations for both Sainsbury’s and Argos customers, increasing footfall and generating cross-selling opportunities across the portfolio. Importantly, 40% of Argos leases are due to expire within the next four years. Relocating these stores into Sainsburys shops where appropriate would significantly reduce operational overheads and serve to optimise their retail space.

So from Sainsbury’s point of view, there are clear synergies and real opportunities; grow non-food sales, grow product range, improve non-food logistics, acquire a best-in-class mobile commerce platform and drive footfall, to name but a few.

The main lesson retailers should be learning from the proposed takeover is that single-channel commerce is no longer enough. It is imperative to give the power of choice to shoppers; ensuring they are able to shop how they want - online, mobile, in-store, or all of the above.

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