5th March 2012
Founded in 1973 by Richard Thomkins, Argos is the largest general-goods retailer in the United Kingdom and Ireland with over 751 stores (1). It was then acquired by GUS plc in 1998 and subsequently became part of Home Retail Group, which was demerged from its parent company, GUS plc, with effect from 10 October 2006 (2). A non-specialized store, Argos carries over 35,000 different household goods such as furniture, toys & games, electronics, jewelry, sports, leisure equipment and PCs. Currently it is the leading UK retailer of toys, small electronics and jewellery (3), and has a significant market share in ‘Do It Yourself’ (DIY) and sports equipment (Exhibit 1). Nowadays, the company boasts over 33,000 employees, serving more than 130million customers each year. As of 2011, took in £4.2bn (€5.03bn) in annual revenues (4) - approximately 7.5% of the £56bn industry. Argos’ mission statement is “We provide our customers with the best value for money through the most convenient shopping experience” (5). The company is based on a simple idea: provide the comfort and convenience of home selection, purchasing and delivery with the closeness of high street stores. In 2004, over 98% off the population of the UK live with in 10 miles (16k) of an Argos store. Since then an additional 201 stores have been opened, totaling 751. Industry Overview
“The current UK retail market is dominated by a comparatively small number of large retailers (6).” For these retailers, including Argos, to be part of this industry they need to find it attractive or to have a competitive advantage that allows them to survive and out perform their competitors. Exhibit 2 shows an overview of the attractiveness of the retail industry in UK. Porter’s model of the five competitive forces help in analyzing the industry’s “attractiveness”. In order to narrow down the analysis, we focus only on the UK market. We can deduce from the exhibit that the retail industry is not characterized by its attractiveness. So we may ask, what did Argos do in the past and what is it doing now that propelled it to the market leader, and what is the underlying strategy behind its success? As a whole, if we consider Argos business model, the variety of products it stocks and the several market segments it serves, we realize that there are no “direct” competitors. Presently, Argos is competing in no less than ten different product markets, outlined in Exhibit 1. Of these, it is currently the leader in the Toys, Jewelry, Home ware and Small Domestic Appliances sectors. For the purpose of this report, the main competitors in each of these categories have been chosen for comparison. Those are Toys R Us (toys), H. Samuel LTD (jewelers) and Dixons (home ware /small domestic appliances). Competitive Advantage
Argos has been able to differentiate itself from its main competitors by developing and maintaining a strategic cost advantage through its innovative, technologically centric and lean business model. Also, Argos maintains its competitive price position by utilizing its purchasing scale and capabilities in all areas of sourcing to create a highly advantaged supply base (7). Exhibit 3 compares some key financial data of Argos and the competitors. We can observe that Argos enjoys a competitive advantage in Cost of Good Sold, which as a percentage of sales are 62.8% and 62.4% (2011, 2010) are the lowest. Consequently, it has a higher Gross Margin relative to its competitors. We can assume that this is a result of economies of scale that allow the firm to have lower purchasing costs from suppliers due to its high volume of sales and purchasing power. Primarily a catalogue merchant, it offers customers multiple channels in which to purchase goods, such as physical stores, online (Web & Smartphones), via telephone using the “Ring & Reserve” service, and through its digital TV station, Argos TV. The catalogue business model facilitates not only...
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