On what would have deadline day for Sainsbury’s to put forward its best offer for Argos , the supermarket is mulling whether to make a fresh proposal for the multichannel retailer in the face of new competition.
Steinhoff International has thrown its hat in the ring with the proposal of a 175p a share offer, said to value the Home Retail Group at about £1.4bn. That’s ahead of Sainsbury’s offer which valued Argos shares at 161.3p, and the company’s total share capital at about £1.3bn. The new offer resets the race to buy Argos, which is at the forefront of digital commerce in a market agreed to be one of the most advanced multichannel sectors in the world. The finish line is now set for 5pm on March 18. Argos, and its owner Home Retail Group , now stands at a crossroads, with its future for the moment unclear.
But what would the two new parent companies mean for the general merchandise trader, recently ranked Elite for the second year running in the IRUK Top500 of UK ecommerce and multichannel retailers?
Steinhoff
If Steinhoff buys Argos, it would become part of a larger value-focused retailer that operates around the world. In the UK, the Frankfurt-listed South African retailer already owns Harveys and Bensons for Beds, while in Europe its holdings include ABRA, Conforama, Emmezeta, Lipo and Poco. Steinhoff’s Australasian holdings include Freedom and Snooze, while its African operations, closer to its home, include Poco, Hardware Warehouse and The Tile House. It seems clear that Argos would bring multichannel expertise to the group around the world in a company that sets out to serve, according to its website, “mass market, value conscious consumer segments”. Perhaps this move would see some streamlining of Argos in the UK with Harveys and Bensons for Beds sharing and consolidating sites.
Commenting on the possible deal, Professor John Colley, of Warwick Business School, sees the potential deal as one that would open up the UK retail market for Steinhoff. “The price tag, mainly cash from Steinhoff, is an entry price to the UK retail market although Steinhoff is a significant supplier of beds in the UK,” he said. “The acquisition of Argos would be a bet on an increase in UK house moves as homeware, soft furnishings and furniture sales follow some six months to a year later.”
Sainsbury’s
Sainsbury’s has already set out its plans for Argos in some detail, both at the time of its first offer and again when it negotiated a proposal with the Argos board. Core to its vision of a combined future is a multichannel business with strong retail logistics and combined retail space. The resulting business, it said at the time of its original bid, would be a “food and non-food retailer of choice for customers, building on the strong heritages of both businesses whose brands are renowned for trust, quality, value and customer service.”
It seems this deal could create a new kind of combined business, and one that would see Argos change more substantially than the deal with Steinhoff.
Warwick’s Colley believes that the news of the Steinhoff £1.4bn offer will be a relief to Sainsbury’s shareholders – unless the supermarket increases its bid. “Sainsbury’s would have been buying a large struggling bricks and mortar estate on the basis of cross-selling opportunities,” he said. “Cross-selling – the practice of trying to sell additional products to existing customers – rarely works, particularly when there are doubts regarding real overlap of customer base. Argos’ competitors are primarily internet-based and do not have the burden of high cost city centre leases.
“The UK grocery retail market has been particularly difficult these last few years with the growth of price discounters Aldi and Lidl. Sainsbury’s positioning towards the upper end of the market has meant they have performed better than their immediate competitors. However, this does not mean they can simultaneously run a troubled business such as Argos, and extract complex cross-selling benefits. It is likely the grocery market will remain competitive for some years and Sainsbury’s will do well to stay ahead in that battle.
