An increasingly attractive Argos?

Since the announcement of the proposed merger between Sainsbury & Asda attention has rightly focused on the aim to “lower prices by c.10 per cent on many of the products customers buy regularly.”

What also caught my attention was the significant role Argos seems to play in the strategic fit for both Sainsbury and Walmart.  There were already plans to put Argos outlets in 200 Sainsbury stores and this week the company indicated locating Argos outlets in Asda stores meant there were no ‘planned’ store closures post merger. (Of course, approval by the Competition and Markets Authority may depend on reduced store numbers).

A quote in FT from Walmart’s CEO is also revealing: “We are particularly interested in the Argos group and the benefit that could bring around the world. We could bring Argos into Walmart stores in other countries in time.”

Such use of Argos, has parallels with Walmart’s strategic partnership with the on-line shopping and delivery platform JD.com – which has led to JD.com electronics ‘showrooms’ being located in Walmart stores across China.  Walmart and JD.com aree also trialing small high tech grocery stores (with minimal staff) that allow customers to bypass check-outs or arrange delivery in 5-30 minutes to locations within 2 km.

Sainsbury & Walmart (both challenged by Amazon) are clearly aligned on extending their on-line presence with multiple brands / partnerships and rapidly developing their physical grocery stores as preferred destinations for click & collect and fast local delivery. Argos, with half of its sales online and almost 75% collected at store can contribute significantly to this.

With analysts predicting UK click & collect sales to increase by 55.6% in the next five years (and limited physical presence for Amazon so far) the urgency of Sainsbury and Walmart is understandable.

Sainsbury’s plans to revamp and digitise their Nectar scheme should also increase the importance of Argos. Nectar, now 100% controlled by Sainsbury, has the opportunity to focus on strengthening loyalty to it’s portfolio of retail brands. A future smart phone app based Nectar also fits well with Argos’s smartphone shopping customers – who could now be encouraged to shop using their phones inside Sainsbury stores too.