Nick Goodway: Sainsbury’s going shopping for Argos is a ploy that’s hard to buy

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I may not be the sharpest knife in the cutlery drawer but I cannot for the life of me see why Sainsbury’s would want to buy Home Retail Group and more specifically its High Street business Argos.

Even assuming that Sainsbury’s will immediately sell on Homebase, the DIY business it sold to Schroder Ventures and B&Q for £969 million in 2000, it is difficult to see how boss Mike Coupe views Argos as the jewel in Home Retail’s crown.

Not least because, as my colleague Chris Blackhurst revealed last week, Coupe was vehemently against such a deal four years ago.

Yes I’ve heard the spin. Argos has the most fantastic logistics operation, and linking that with Sainsbury’s fabulous food and groceries would produce an unrivalled bricks-and-mortar/click-and-collect/home-delivery behemoth. 

But something to rival Amazon, as a broadsheet newspaper that prints on pink paper appeared to claim in a headline?

I don’t think so. I have always thought of Argos as the poor man’s Amazon. I have shopped there once or twice and Mrs G sometimes uses its click-and-collect service. But neither of us would describe it as an enjoyable retail experience.

Argos shops tend not to be in the nicest parts of town. Its range is extensive but not limitless and its prices don’t really seem to be as good as those available elsewhere on the internet — particularly at Amazon. 

I am under no illusion that retail and the High Street are undergoing massive change.

Indeed I can quite easily leap forward a decade and envisage a typical High Street with its branch of the sixtysomethings’ clothes retailer, rebranded Em’n’Ess, the Dixons Carphone Apple all-things-electronic store and Primaldi with its designer food and cheap fashions.

“There is little evidence that Sainsbury’s and Argos have much of a shared customer base.”

Nick Goodway

Claire’s Accessories appears to have merged with Accessorize, and Foxtons Building Society is a new one on me. But I just can’t see the Sainsbury’s Argos fascia in my imaginary town centre. 

Back in the real world, there is little evidence that Sainsbury’s and Argos have much of a shared customer base.

There is always the danger that in reputational terms, Sainsbury’s will sink to the lower common denominator. 

Then there’s the finances. It’s not just about the mooted £1 billion bid for Home Retail’s shares, however that might be made up with a mixture of cash and Sainsbury’s own shares.

For a company with £1.6 billion of debt already, how much extra cash can be put up is a pertinent question.

Argos-samedaydelivery.jpg

On top of that comes the small matter of Argos’s leasehold commitments on its properties. Here there could be as much as another £2.5 billion of liabilities to put on the wrong side of Sainsbury’s balance sheet. 

Finally, I have no great faith in the deal being a game changer when it comes to Sainsbury’s bank and financial services. It will add something to the loan book but in reality no retailer has cracked banking yet. 

So if I were an Argos shareholder, I would take the money, if it ever materialises, and run.

Source Article from http://www.standard.co.uk/business/nick-goodway-sainsbury-s-going-shopping-for-argos-is-a-ploy-that-s-hard-to-buy-a3154401.html

January 13, 2016 |
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