Tuesday, 02 February 2016

Sainsbury's offers £1.3bn for Argos

If successful this could be a brave and decisive move by Sainsbury's – allowing the retailer to diversify its appeal, repurpose its store space and simplify its own offering. In the medium term, this would create two retailers under one roof, one focusing on non-feed and the other on groceries.

If the £120m per year cost saving synergies touted by Sainsbury's are accurate, or conservative as the retailer claims, then the deal will effectively have paid for itself in little more than a decade.

However, there is a flip side to this. Argos has developed a strong multichannel offering but not one that necessarily lends itself to grocery delivery and the two retail subsectors are fairly divergent. Additionally, competition from Amazon remains strong and is expanding quickly while discount retailers, another significant market challenger to Sainsbury's, are thriving precisely because they are keeping things simple by focusing on what they do best.

Rather than creating a new avenue for sales Sainsbury's may find that it is simply opening itself up to a new front of competition.

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