Sainsbury’s has made a formal £1.4bn bid for Argos owner Home Retail Group, a move that swiftly followed rival suitor for the business Steinhoff International’s decision to pull out of the race. On an earnings call earlier in Janurary this year, the supermarket’s boss Mike Coupe gave analysts and media a limited view of his plan for the retail group. Here’s what you need to know.
It’s not about ‘beating’ Amazon
Home Retail Group’s sizeable investment into transforming Argos has helped it stand up to the increasing presence of Amazon. Meanwhile, Amazon has turned it’s attention to food with a long-promised entry into the grocery sector expected to come into force this year.
If Coupe is concerned, he hasn't shown it despite a number of probing questions on the subject, and insisted that the potential deal with Argos – which would considerably ramp up its delivery network – is not in response to the e-commerce giant’s arrival.
“We are always very alive to any competition,” he said in January. “We’re not trying to take on Amazon. Customers expect to be able to buy offline and online. Amazon happens to do some of it, but not all of it. We would argue that this would give us a unique business in the UK, with over 2,000 shops which Amazon doesn’t have. Amazon are disruptive but not always successful. But they keep trying until they get it right.”
Instead, M&S and John Lewis would become its main non-food rivals. While the former is struggling to keep sales ticking over, John Lewis is continuing to make significant investments in its digital offering which – according to its festive results – appear to be paying off.
Driving the point home, Coupe said the combined entity would represent a £6bn non-food business, bigger than Amazon, John Lewis and M&S.
It will expedite Sainsbury’s ongoing plans to ramp up its online offering
Since Coupe arrive in 2014, honing Sainsbury’s digital strategy has been a priority. He was quick to remind that interest in a Home Retail Group takeover has been driven purely by the now fundamental need to serve customers “whenever and wherever they want to shop”.
“The retailers that will win will be those that bring together the online and offline presence,” he said.
He said expectation now is that people can shop in store, online or from their mobiles and for it to be delivered or collected when they want. Highlighting the two customer-types it's now after, he talked of his 78 year-old mother who still goes to her local supermarket while his daughter shops via mobile.
As of last year, Argos invested £10m into further enhancing its delivery platforms to offer same-day delivery, something Coupe will be looking to tap into should a deal go ahead.
Furthermore, Coupe said 40 per cent of the UK population shop at both Sainsbury’s and Argos which “our experience shows that the more a customer shops with us across multiple categories and channels, the more we capture of their overall food and grocery spend”
Argos shops could close, but more will open as outlets in Sainsbury's
While Coupe didn’t go into detail on concerns that a takeover would result in the closure of a number of Argos shops on the high street, it was suggested that “you would have fewer Argos stores but more points of presence".
Currently, there are 840 Argos shops in the UK but as many as 40 per cent will see their leases expire in the next five years. This ultimately would make it “easier and cheaper” for Sainsbury’s to close stores in those locations. However, he would look to bring the concession store format it began trialling last year – of which there are only a handful – to some 2,000 Sainsbury's stores. It would also look to introduce click and collect points throughout convenience stores.
Jobs at Home Retail Group HQ could go
While Coupe plans to run Sainsbury's separately to Argos he hinted that one head office for both businesses is the most logical management strategy. But that could see duplication of roles in areas such as procurement, for example. The most logical move would be to combine foces in such areas, according to the supermarket chief.
“Will head office jobs go? Clearly, you don’t need many of the central functions in two places so we would see them combined," Coupe said during a press call on 18 March.
Despite an unclear future for some head office roles, those working in the stores have a firmer idea on how things would play out should a deal be struck by the two retailers.
“We anticipate more jobs, not less jobs,” assured Coupe, who would not be drawn on store closures yet did predict “more Argos outlets overall” from the union.
"It’s not a fair suggestion that when a lease comes up for renewal they [Argos stores] that will be closed and brought into a Sainsbury’s. Some stores will close. But we want to bring the brand to more people in the UK. We want to grow the brand.”
Home Retail Group has stated that it will reccomend Sainsbury's bid to the board. The offer is then conditional on Home Retail shareholder supporting it and regulatory approvals from the Financial Conduct Authority, the Competition and Markets Authority and the Guernsey Financial Services Commission.
"There is positive intent on both sides," said Coupe. "Yes, there are many things that could happen. There are many risks. But we've clearly overcome a hurdle and made a step in the right direction. [The merger] has probably gotten more likely rather than less likely."