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Is Sainsbury Overstretching Itself?

  morddwyd 10:08 03 Feb 2016
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Is Sainsbury biting off a bit more than it can chew with its proposed takeover of Argos?

None of the big five, nor Argos, are exactly achieving brilliant results at present, and while there may be economies of premises and distribution, many analysts suggest this is a time for retrenchment and reinvestment rather than a major new expansion.

I have stopped using Argos because of their poor customer service, and while this may be a local problem I doubt I'm the only one.

They are, after all, going to compete with the likes of Amazon and John Lewis.

  oresome 11:54 03 Feb 2016

The argument goes that the larger stores are now too big as customers either have home deliveries or shop more frequently and purchase in smaller quantities. So the retailers are thinking of other things to fill the space.

Sainsbury's larger stores along with the other major supermarkets already sell household goods, electrical and clothing. Not only that, the goods are on display to examine before purchase, so there is some overlap with the items Argos sells.

Argos made sense when their prices were noticeably cheaper to reflect the lack of items on display, but I don't think there is a price differential now. I still use them for convenience as they have a local store and the range of goods is impressive.

I'm a Sainsbury's shareholder and see this as an unwelcome risk.

  Govan1x 12:16 03 Feb 2016

I think it was Homebace that was causing the financial problems because there were less DIY items being sold and they were loosing customers.

So maybe to get Argos at a decent price is not to be sneezed at.

I always found them to be reliable and any time I had to take anything back it was exchanged with no problems.

The bonus is it is in the town center of most places so handy to buy from if you do not have transport.

  BT 08:49 04 Feb 2016

Correct me if I'm wrong but Sainsbury's used to own Homebase, and they are part of the same group as Argos (there's an Argos outlet in my local Homebase), so it seems to me that they are basically buying back some of what they owned before.

  Quickbeam 08:54 04 Feb 2016

I've been hearing at lot recently that the various retail 'click & collect' delivery is the next big thing. I prefer to use that option myself to avoid missing a delivery and then having to then rearrange it. DPD will deliver goods to my local Halfords if on receiving the item despatched text I choose to divert it there.

But why pay mega money to buy into this if you already have hundred of outlets in the community?

And isn't the Post office missing a trick here by not getting into this and offering parcel diverts to the local paper shop, 24/7 etc?

The parcel delivery business is on the edge of a mega change here.

  dagbladet 07:59 05 Feb 2016

The huge store in Crayford used to be half and half Sainsburys and Homebase. A few years ago the homebase went and Sainsburys knocked through the wall to create a bigger Sainsury, last year they gave over a huge chunk of floor space for an instore Argos outlet. I'd assumed this merger/takeover had already happened.

  oresome 09:57 05 Feb 2016

Sainsbury's had simply rented out space to Argos at that time.

They probably noticed an increase in footfall which resulted in increased sales and that sowed the seed of an idea to purchase Argos.

Argos will lose many recently opened outlets within Homebase stores when it changes hands unless they or Sainsbury's as the new owner come to an agreement to rent the space from the Australian company, but I expect they will have more than enough outlets utilising Sainsbury's stores

Incidentally, Sainsbury's in house pharmacy has been purchased by Lloyds.

  john bunyan 13:59 05 Feb 2016

Homebase was launched by Sainsburys in 1979; In 1995 they bought Texas (I bought a kitchen from them) so Homebase increased in size. Sainsburys sold them in 2000 and other owners bought and sold them. A return to Sainsburys is a bit like a return to one's parents after an unsuccessful relationship!

  Forum Editor 15:01 05 Feb 2016

The Bunnings DIY stores in Australia are amazing - they beat anything we have here. The Homebase stores will be rebranded over the next few years, and it will be interesting to see what Westfarmers do with them. Westfarmers is a very big business indeed. The company owns Australia's biggest supermarket chain, called Coles, and those stores are equally impressive.

Sainsburys acquisition of Argos makes good sense coming, as it does, at a time of fluidity in the food retailing sector. Having Argos in its pocket would be an excellent strategic move. I don't see where the risk lies.

  oresome 16:24 05 Feb 2016

I don't see where the risk lies.

The parent company of Argos, Home Retail Group, made a profit of £426 million in 2008. Last year the profits was £94 million.

Turnover appears to be static over that period and I assume the business has been impacted heavily by the likes of Amazon and other on-line only sales companies who have no retail outlets to maintain.

Sainsbury's management will have their attention diverted by the acquisition away from the issues faced by the Sainsbury's itself.

  Forum Editor 17:40 20 Feb 2016

Belatucadrus

I'm not surprised - Argos has to be an attractive proposition for a company like Steinhoff. The company is huge in South Africa, and already owns Harveys and Bensons Beds in the UK.

It will be interesting to see if Steinhoff makes its offer firm by the cut-off date, and how Sainsburys will react if it does.

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