Home Retail, Britain's largest household-goods retailer fighting a slump in sales at its Argos business, will not close stores, its chief executive said, dismissing analyst calls for a radical change in strategy.
Chief executive Terry Duddy said the firm had gone through an extensive market-research exercise to find out "what the hell's happening" after sales at Argos stores open over a year fell 9.6 per cent in its fiscal first quarter.
That was followed by an 8.6 per cent fall in its second quarter.
He said the study concluded its strategy of building a multi-channel business through a nationwide catalogue-based store network and the Internet, and offering greater product choice to attract new customers, was the correct one.
"There were no eurekas ... It was a full and hard check. It was a hard reflection of where we were and it tells us that we believe that actually our strategy's right," he told reporters at a media dinner yesterday.
"And we know that that isn't necessarily what everybody wants to hear, because at this level of performance people are expecting a sort of transformation," he said, referring to analyst calls for Argos to dramatically scaledown its 754-store portfolio, reduce catalogue sizes and cut its cost base.
Argos finance director Matthew Smith said Argos stores typically have 15-year leases and on average have seven years left to run.
"Hypothetically even if we did have lots of loss-making stores, we couldn't exit them anyway," he said, although he did note that 150 store leases are up for renewal over the next five years. "Our view looking forward is we think we can grow our store estate further."
Mr Duddy said he took comfort from data which showed that over a two-year period, Argos had not lost share in the markets it trades in. "The thing that we've got to do is not just be great in the markets that we're in but get into new markets," he said, pointing to recent investments in TV shopping, mobile phone applications, books and children's wear.
Mr Duddy said Argos is facing structural challenges in the form of intense competition from supermarkets, specialists and internet players as well as a changing product mix and changing consumer behaviour, but said he is confident the firm would still prosper. "What's going to happen is that we'll be working (in) a consolidated market where there's less specialists than there are today," he said.
With a stock market drop and the European debt crisis creating a grim backdrop, UK consumers are grappling with rising prices, subdued wage growth, a lack of credit, job insecurity, a stagnant housing market, government austerity measures and fears of eventual interest rate rises.
A survey yesterday said British retail sales weakened at their fastest pace in 16 months in September, with stores expecting little improvement in October.
Argos has been particularly hard hit by the downturn as its predominantly low-income customers are suffering the most severe squeeze on their budgets. The business sells consumer electricals, furniture, toys and jewellery.
"I do not know when it's going to get better," said Mr Duddy. "I'm not one of those people who think 2012 might be the point of optimism with (the Queen's Diamond) Jubilee and the Olympics . All I can say at this time is it might be a bumping along the bottom and I hope that's going to be the case."
Shares in Home Retail, which also owns the Homebase do-it-yourself chain, have lost 45 per cent of their value over the last year.
Reuters
