Argos rocked by £30 million late payment error

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Argos customers who signed up for store cards may have been stung by excess late-payment fees, the company has admitted, as it put the cost of correcting the mistake at £30 million.

The company, part of Home Retail Group which is set to be acquired by Sainsbury’s, flagged a £17 million charge in April to cover customer redress payments in its financial services business, mainly due to PPI compensation.

But it emerged in the past few days that a miscalculation that meant late fees had been “erroneously collected” was worse than first thought and “a more extensive customer redress will now be required”.

An additional £30 million was a preliminary estimate of the cost, the company said.

Chief executive John Walden sought to downplay the issue, saying just a “small single-digit of the Argos card customer base” was involved and that on average the repayments would likely be “double-digit pounds” at maximum.

The company did not give an exact figure for the number of customers affected. 

“Overall in the context of our business it is not a material number of customers. But for each customer it matters and to the extent a bigger redress is required we will address it and treat customers fairly,” Walden said.

The revelation comes at an awkward time for Sainsbury’s, which agreed the £1.4 billion takeover this year.

The merger, which is being looked at by the Competition and Markets Authority, is scheduled to complete in the third quarter of the year. 

Walden said he did not expect regulators would ask for a more detailed, phase 2 investigation of the deal.

Sainsbury’s bosses may have found some solace from the fact that Argos delivered its strongest sales growth in eight quarters in its first quarter, however.

Total sales were up 2.6% to £868 million in the 13 weeks to May 28 boosted by store openings.

Same-store sales were up 0.1%, but the retailer said that came in spite of cannibalisation from additional outlets, poor weather in April and a “deflationary price environment”.

Walden hailed a long-awaited return to growth in TV sales as customers warmed to new, 4K technology and noted that mobiles, tablets and computers also sold well, contributing to growth in electricals of around 10%.

Furniture and sports goods were among the best selling in non-electricals. Sales of white goods weakened.

A 16% rise in internet sales was offered as proof that Argos’s heavy investment in digital operations, an attraction for Sainsbury’s, was paying off. Digital sales made up almost half the chain’s sales in the quarter.

Bernstein analysts said the update showed “the potential diverse growth profile for the combined entity” of Argos and Sainsbury’s.

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June 9, 2016 |
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