Sainsbury's plans to close hundreds of Argos stores

Sainsbury's has revealed it could shut a raft of Argos stores and relocate them within its supermarkets as it set out the case for a £1 billion-plus takeover of Home Retail Group.

Wednesday, 13th January 2016, 10:49 am
Updated Wednesday, 13th January 2016, 2:39 pm
Sainsbury's has made an approach for Argos owner Home Retail Group, which has been rejected.

The chain said it is still “considering its position” after it took the market by surprise last week when it revealed it had made an approach for the group in November, which was rebuffed.

Sainsbury’s chief executive Mike Coupe remained tight-lipped on talks with Home Retail and plans for any improved offer.

But in a presentation outlining its rationale for the tie-up, Sainsbury’s said it would look to shut a number of the 734 stores in the Argos chain and bring them into its supermarkets as concessions.

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Leader: Mike Coupe became chief executive of Sainsbury's in July 2014.

Retail experts believe between 150 and 200 Argos stores could be impacted.

Mr Coupe said overall it could expand the Argos chain by rolling out concessions in supermarkets nationwide.

He also stressed the group would not overpay for Home Retail amid reports that some major shareholders want at least £1.6 billion.

“This is not a deal we need to do at any price,” he said.

Smartshop: Sainsburys experiments with new supermarket design to make shopping quicker.

The comments came as Sainsbury’s revealed a slightly better-than-expected performance over the Christmas season, with sales in established stores excluding fuel edging 0.4% lower in the 15 weeks to January 9 against a “highly competitive” market.

Its trading failed to match the 0.2% sales increase reported on Tuesday by smaller rival Morrisons in what marked an unexpected result from the embattled group, although this was for the nine weeks to January 3.

But Sainsbury’s was the only one of the so-called Big Four to gain market share over Christmas, according to data from Kantar Worldpanel on Tuesday showing its share rising to 17% in the 12 weeks to January 3 from 16.9% a year earlier.

The City is eager to hear if Sainsbury’s will increase its bid for Home Retail, which also owns DIY chain Homebase.

Leader: Mike Coupe became chief executive of Sainsbury's in July 2014.

It has until February 2 to make a firm offer or walk away under the City Takeover Panel’s so-called put up or shut up deadline.

Sainsbury’s said it believes around half of Argos stores had shop leases with less than five years to run, offering opportunities to shut a number of these and move them into its outlets.

There are already 10 Argos concessions within Sainsbury’s stores as part of a trial.

The grocer said it is a “strategically compelling transaction” which would allow it to take on the might of rivals such as Amazon, with more than 100,000 general merchandise products between Argos and Sainsbury’s.

Smartshop: Sainsburys experiments with new supermarket design to make shopping quicker.

It also sought to answer critics who have questioned cross-selling opportunities, claiming that over 40% of households have shopped in both Argos and Sainsbury’s over the past year.

But Mr Coupe said he “couldn’t be drawn” on plans for Homebase, stoking speculation it would seek to offload the business.

Analysts at Bernstein said there are still concerns over the Home Retail deal.

“As Sainsbury’s is still reporting negative like for likes - albeit improving and better than deflation - we still see the deal as a distraction from the key battles for Sainsbury’s,” they added.

The takeover saga will remain in the spotlight on Thursday as Home Retail will be looked to for its take on the tie-up when it updates on recent trading.