Customers the losers in Argos plan
In a business world where mergers and acquisitions are de rigueur these days, the announcement from Sainsbury's that they are keen to purchase Argos might be regarded as fairly unexceptional.
However, some leading industry experts have already expressed concern that Sainsbury's could be backing the wrong horse if they are simply looking for a solution to the problem of surplus space in many of their retail outlets.
It is no secret that Sainsbury's has discovered they have too much un-filled selling space in some larger stores due, in part, to streamlining product ranges and more rigorous category management and that may be part of the rationale behind the planned purchase of Argos from Home Retail Group (HRG). But it's certainly not the whole story.
Yesterday, worryingly, Argos reported like-for-like sales down by 2.2% in the 18 weeks up to January 2, in spite of its best ever sales, up 41%, on Black Friday.
Also interesting to note is the fact that HRG is in reportedly advanced talks with the Australian company, Wesfarmers, to offload Homebase for a reported £340m. This raises the much bigger question of what is really going on at HRG, especially if they were to offload Argos to Sainsbury's and Homebase to Wesfarmers.
There is an already very successful strategic alliance between Sainsbury's and Argos in existence, and it is apparently the plan to further hone this relationship through acquisition.
Sainsbury's has already indicated that, if the deal goes ahead, 200 Argos stores could potentially be closed but state that they would be able to re-deploy those staff in their own supermarkets.
However, it's not just all about which retailers want to join forces in order to create a more formidable force in the supermarket sector. The needs, desires, demands and aspirations of consumers have got to be uppermost when making such radical decisions.
Both Sainsbury's and Argos need to carefully consider the ramifications of any proposed 'marriage of convenience' from the point of view of consumers.
Everyone knows that strategic alliances and joint ventures, like marriages, sometimes don't work!
- Donald C McFetridge is a retail analyst at Ulster University