How will Sainsbury's Argos takeover shake up the channel?

Acquiring products lines, staff and expertise from Argos will drastically increase the supermarket’s tech offerings
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While Sainsbury’s is on track to complete its buyout of Argos owner Home Retail Group by Q3, we take a look at what this takeover could mean for its rivals and the channel.

A merging of the two retailers might not be completely out of blue when you consider that Argos opened its first two ‘digital stores’ within Sainsbury’s supermarkets in North Cheam in Surrey and Nantwich in Cheshire in June 2015.

At the time, Sainsbury’s retail & operations director, Roger Burnley, said: “This partnership with Argos is one of a series of steps we are taking to ensure we continue to offer our customers a wide range of products at great value and to make their shopping more convenient.”

Getting a bigger tech portfolio like other supermarket rivals such as Tesco seems like a natural next step for the firm, which currently offers smartphones, tablets, laptops and games consoles.

Despite more than doubling its digital and technology staff over the past year, acquiring the products lines, staff and expertise from Argos will drastically increase Sainsbury’s tech offerings.

With a recent report from Home Retail Group that online sales now make up over 50 per cent of all Argos sales, the takeover would not only help propel Sainsbury’s sales of tech, but also its online presence. Possibly even put it in a position to take on the likes of Amazon.

As David Jinks, head of consumer research at Fastline International, puts it: "The merger of Sainsbury’s and Argos will create a powerful retail force; combining multi-channel sales with class leading delivery options.

“The take-over by Sainsbury’s of Argos has its critics; but Sainsbury’s knows the groceries market is not a major growth area; whereas the combined Sainsbury’s Argos operation would forge a group offering over 100,000 products,” said Jinks.

“Customers expect to be able to buy offline and online and Sainsbury’s argues the takeover of Home Retail – which owns Argos and Habitat – gives them a unique business in the UK, with over 2,000 shops: something which Amazon doesn’t have.”

He added: “Sainsbury’s could also benefit from Argos delivery fulfilment expertise. It’s pioneering same day Fast Track service, seven days a week, offers exactly the customer experience people now expect.”

The recent news that Sainsbury’s has hired 150 digital experts also ties in with the idea that the retailer will look towards taking down the likes of Amazon and Tesco.

The team will help improve its online store and include software developers and engineers who will work in partnership with 900 other experts.

Despite Home Retail Group today (April 27th) announcing a plunge in profits, most of this is related to an ‘exceptional goodwill impairment charge’ of £852 million relating to Sainsbury’s bid to buy Argos.

But even without that charge, annual profits were down 28 per cent to £94.7 million, with sales down 1 per cent to £5.6 billion.

Sainsbury’s has bid £1.2 billion to takeover Argos, which has been going through a period of digital transformation. The retailer has been revamping stores as part of a five-year plan to cut cost and implement a Fast Track same-day delivery services – another interesting feature that could help the two brands take on Amazon.

Speaking about the makeovers, chief executive John Walden said: “People who are not adequately participating in digital will be at a disadvantage.”

While we’ll have to wait and find out just how big an impact this takeover will have on the channel, there’s no doubt that some independent retailers will not be best pleased at the thought of another huge online retail presence.

What do you think about the Argos takeover by Sainsbury’s? Let us know in the comments section.

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