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Digital transformation helps Argos owner report 32% profits rise

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Argos’ digital transformation today helped Home Retail Group to report a 1% rise in sales, and a 32% rise in pre-tax profits.

Two years into the five-year plan to put digital first in the business, Argos said that 46% of its total sales took place over the internet during the year, with a quarter now made via mobile devices.

The update came as its parent company Home Retail Group reported sales reached £5.7bn in the year to February 28, 1% up compared to the previous year, while pre-tax profits grew by 32% to £93.8m. Home Retail Group chief executive John Walden said the Argos transformation plan would remain the group’s “principal source of shareholder value over the medium-term.” He said the plan, introduced in October 2012, had been aimed at turning around company performance. Today, he said, “The strategic opportunity for Argos to be a retail leader in a digital future, with access to even greater long-term growth opportunity, remains compelling and achievable.” He said the coming full year would be important for the business as it introduced “several new customer propositions, enabled by new digital capabilities.” These are expected to be introduced in time for peak trading ahead of Christmas and will include the opening of 10 digital concessions within Sainsbury’s stores, announced earlier this year.

Argos turned in sales of £4.01bn, up by 0.6% on a like-for-like basis that strips out the effect of store openings and closures. By year end, online sales represented 46% of Argos sales, with mobile commerce growing by 38% to account for 25% of Argos’ sales. At its sister company Homebase sales reached £1.48bn and were up by 2.3%, like-for-like. Multichannel sales grew by 10% during the year to account for 8% of total sales.

During the year just gone, Argos completed the roll-out of its hub and spoke distribution network, enabling customers to order and collect around 20,00 products for same-day delivery. The company is currently trialling ‘hub to home’ delivery. During the year, more than a million eBay parcels were collected from Argos stores.

It also opened 60 digital stores, across three different store formats including the small-format digital store now trading at seven locations including Cannon Street tube station. Sales from the latest digital stores, said the company, are outperforming the rest of the store estate. Improvements have been made from insights into the early trial stores, including to the new in-store tablet browsers, and to product displays.

But, said Walden in his overview, a major overhaul of technology infrastructure still lies ahead. So far the company has introduced real-time stock visibility across the hub and spoke store network as well as payment and content management systems. But “several critical components” still remain to be developed or introduced.

At Homebase, a productivity plan is now underway that is set to conclude in the 2018 full year, at the same time as the Argos plan. It aims to improve customer service as well as improving the digital offer by building on investments already made at Argos. The company is set to have around 243 stores by the end of 2018; by the end of the latest financial year that figure stood at 296, and 35 are expected to close during the coming year.

Walden said profits were well ahead of expectations. “Both Argos and Homebase contributed positive like-for-like sales and profit growth for the second successive year. I believe the strategic plans we are pursuing across the Group will enable us to innovate and lead in a rapidly changing retail market.”

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