What would you do if you were Argos?

Today Argos announced that their profits over the last 6 months have slumped from £54.4 to just £3m. Sales were down 9.1% but the squeeze on profit margins meant that their profits had collapsed by an amazing 94%. Even to a toy wholesaler thats quite an extra-ordinary set of figures, and to put it in to some sort of context it means that each Argos store makes less than £10,000 profit per annum.

As a small independent retailer (or a small independent wholesaler!)you may be thinking that £10,000 profit after paying all your costs doesn't sound so bad but remember that the average Argos shop is 15,000 sq metres. So £1.50 per metre per year. Nice!

But what happens now? What would you do if you woke up to an overnight drop in sales of 20% or more? Argos appears to be pinning its hope on a joint venture in China

There are a couple of times in recent history when businesses have experienced dramatic drops in sales overnight. The Dot Com boom/bust, the tragic events of 9/11 and Mad Cow disease to name but a few.

The first thing people seem to think about is how to reduce costs and certainly the City is pressurising Argos to close some stores. However if you are a retailer whose business model rests on discounted prices presumably your cost base has been scrutinised already over the last couple of years.

Which leaves growing sales or radically changing your business model. Is it possible that this recession has changed shopping habits so that discounting is no longer a viable method of retailing?

By this I do not mean retailers such as Pound shops and Aldi. Although their message to consumers is one of price their business is set up very differently to retailers such as Woolworths and Argos. They have a very slick operation behind their stores and their product ranges are not static or based on brands. Aldi will buy as much of possible of the best jam at the best price and sell it until they have none left when they will look in the market for the best jam at the best price. This is totally different to buying Robinsons jam and selling it more cheaply than anyone else.

As a knitted and crochet toy wholesaler it seems to us that after 4 years of recession shopping habits seem to have changed significantly. You can pretty much buy everything you need on line and compare prices of brands before you make the purchasing decision which makes discounting on the high street a difficult proposition

People still enjoy shopping and you can see that in the results of companies such as The White Company and JoJo Maman Bebe who are enjoying sales and profit increases because they provide the right product at the right (not necessarily the cheapest) price. But people want a good product, a good service and a good ambience. They don't have enough money not to chose carefully so there is more consideration over purchases.

This is great news for Independent retailers and the wholesalers who serve them but not such good news for Argos.

When the recession first hit in 2008 and the pound slumped agoinst the dollar Best Years had to go back to the drawing board and assess what our customers wanted from us, and why they bought from us rather than another wholesaler. It took over a year but in the end we got back to well designed, unique and ethical ranges and sales are booming.

Personally I don't think that a joint venture in China is going to pull Argos out of the mire. They should go back to why they originally set up in the unique way they are and think whether this is still applicable. If so get back to your knitting. If not you have permission to panic!

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