Home Retail Group plc

Type: Public Company
Address: 489-499 Avebury Boulevard, Saxon Gate West, Milton Keynes, MK9 2NW, United Kingdom
Telephone: (+44 845) 603 6677
Fax: (+44 1908) 692 301
Web: http://www.homeretailgroup.com
Employees: 53,000
Sales: £5.85 billion (2007)
Stock Exchanges: London
Ticker Symbol: HOME
Incorporated: 2000 as Argos Retail Group
NAIC: 452990 All Other General Merchandise Stores; 444110 Home Centers
SIC: 5331 Variety Stores

Home Retail Group plc is one of the top retailers in the United Kingdom via the 680-outlet Argos general merchandise chain and the 310-unit Homebase home improvement chain. Argos, which accounts for about two-thirds of revenues, sells through catalogs and online, with its outlets serving primarily as pickup points for goods that include electronics, appliances, furniture, jewelry, toys, gardening supplies, and housewares. In addition to home improvement products, Homebase stores offer furniture, appliances, housewares, and gardening products. Home Retail Group is the number one U.K. retailer in a number of categories including furniture, toys, jewelry, and gardening supplies. The firm was a division of GUS plc until the fall of 2006, when it was spun off as a publicly traded corporation.

Beginnings

The roots of the Home Retail Group date to 1958, when Richard Tomkins founded a firm called Green Shield Trading Stamps to offer British retailers incentives to build customer loyalty. He modeled the business on S&H Green Stamps, which he had discovered while on a trip to the United States. In that firm's popular program, when someone made a purchase at a participating retailer (who paid S&H for the stamps, and were guaranteed exclusive rights in their area to award them), they were given stamps relative to the amount spent that were then glued into booklets. When enough had been collected, they could be redeemed at a network of redemption centers for items (typically luxury goods) that were selected from a catalog.

After its introduction to the United Kingdom, Tomkins's Green Shield program quickly took off and he established a network of redemption centers around the country. In July 1973 a spinoff called Argos was launched that utilized 17 converted Green Shield locations in London and southeast England. In addition to exchanging goods for completed stamp booklets, they would also sell products through a 252-page glossy color catalog, about three million of which were distributed. Approximately 4,500 different items were offered at prices that were advertised as 30 percent below standard retail, with the company using the tagline "Buy it at Argos and pocket the difference." Products included a wide range of housewares, furniture, jewelry, toys, small appliances, office goods, and pet accessories. Like Green Shield outlets, Argos stores were bare-bones affairs that had simple counters from which customers requested items they had ordered, which were then delivered to the front from a large rear stockroom. Some items, but not all, were displayed in locked cabinets.

Launched with a sizable promotional push, Argos's business was strong from the start. The firm issued a new catalog at approximately six-month intervals, though after the first several years the number of products was cut in half due to difficulty keeping stores adequately stocked. Because of this and other problems the company scaled back expansion plans, while also eliminating more expensive items such as diamond jewelry. By 1976 many of the initial issues been smoothed out, however, and during the year the firm took over acquisition and distribution of its own goods, which had previously been purchased from sister firm Green Shield.

That company's stamp program was in decline, in part because of the oil crisis of 1974-75, which had caused many gas station owners to opt out so they could pare costs to lower prices. After grocery chain Tesco, which accounted for a third of Green Shield's revenues, canceled its contract in 1977, Tomkins announced he was phasing out the Green Shield Trading Stamp Co. and transferring its assets to Argos. Argos stores would continue to accept stamp booklets in exchange for goods for several years afterward.

During the mid-1970s Argos expanded rapidly, in 1977 and 1978 opening stores in Scotland, Wales, and Northern Ireland. By 1979 there were a total of 91 outlets. The merchandise mix had evolved to emphasize sports and leisure products, personal accessories, toys, and jewelry, the latter through the Elizabeth Duke line, which was given a separate display area in stores.

Sale to BAT Industries in 1979

In 1979 Richard Tomkins sold Argos for approximately £35 million to British American Tobacco Industries (BAT), which was then seeking to diversify into retailing from its primary business. Argos had annual sales of approximately £200 million and profits of some £4 million.

The firm's expansion continued under BAT, and by 1985 sales had grown to £388 million and profits to £32.4 million. In 1986 Argos announced plans to open 20 new stores, including five 30,000-square-foot superstores, which would bring the total to 189 by year's end. The company's product line ran to more than 6,000 items, and while its standard outlets displayed only a portion, superstores would display the full line while also distributing a special larger catalog. The changes were intended to boost browsing and increase sales made on impulse. At the same time a new store model for smaller towns called Best Sellers was introduced with just the 1,000 top-selling items, which were depicted in a smaller catalog. More than two-thirds of U.K. residents had access to an Argos outlet.

During the late 1980s the number of stores continued to grow, rising to 231 by the start of 1989, including 12 superstores. Early that year a new £200 million, ten-year expansion campaign was announced which was expected to add 72 new superstores, 165 regular locations, 200 Best Sellers outlets, and a new distribution warehouse in northwest England. The firm had added a computer system that analyzed inventory levels on a daily basis so that stores were kept fully stocked. Argos employed 9,000 and was producing 23 million copies of its catalogs annually. For 1989 the company had revenues of £830 million and profit of £63 million. Argos was the largest retailer of small electrical appliances in the United Kingdom, and the second largest seller of jewelry and toys.

In April 1990 Argos plc was spun off from BAT through an issuance of stock to the parent firm's shareholders. Its CEO at this time was Mike Smith, who had started with the company in 1974. During the year the firm revisited its roots by creating a unit called Argos Business Solutions that gave customers of Mobil gas stations "Premier Points," which could be accumulated and used to claim Argos goods. A number of other retailers later signed on as well.

In 1992 the firm abandoned the Best Sellers format and converted those outlets to standard size stores. A new non-catalog furniture store concept called Chesterman Home Furnishers was also launched. Four of the 30,000-square-foot, upscale stores were opened, but all were closed within a few months, with Argos taking a £12.7 million write-down on the effort. The year saw Argos's sales top £1 billion for the first time, while founder Richard Tomkins died at the age of 74.

In 1995 Argos launched a new type of outlet for small towns known as Call and Collect, 19 of which opened over the next several years. They were supplied with products by a nearby superstore, which delivered requested items within 24 hours of an order being placed. The firm also added a web site in 1995 and opened several First Stop outlets, which featured discontinued items at clearance prices.

In 1996 the company opened its first store in the Republic of Ireland and two years later expanded to the Netherlands. During the 1990s the firm's product mix had continued to evolve, with more products introduced and larger items such as furniture added.

Acquisition by GUS in 1998

In 1997 an offer to buy Argos by mail-order retailer GUS plc (originally known as Great Universal Stores) was turned down, but early the next year GUS launched a hostile takeover bid that culminated in its purchase of the firm for £1.9 billion. A number of top Argos executives subsequently departed, with former PC World Managing Director Terry Duddy named CEO.

By 1999 there were 332 standard size Argos stores and 89 superstores. During the year their separate catalogs were merged and the number of items offered at each was equalized, while a truck delivery service, Argos Direct, was introduced. The company's stores were also undergoing refurbishing and several distribution sites were being added, while a new 700-page catalog of clothing items called Argos Additions was introduced. A home shopping channel on the British Interactive Broadcasting network was launched in October. Sales for 1999 hit £1.9 billion, with an operating profit of £122 million.

As more and more consumers gained access to the Internet, the firm began enhancing its web site, putting its full catalog online and launching the "click and reserve" option so shoppers could check product availability at their local Argos and then reserve it for pickup or schedule it for delivery. The firm also took advantage of the Argos Direct service to begin offering larger appliances such as washers and refrigerators.

Argos accounted for more than a third of GUS's profits, and in 2000 the company's parent created a division called the Argos Retail Group (ARG), which would be headed by Terry Duddy. It would include the 450-store chain, GUS's mail-order shopping companies in the United Kingdom, Ireland, and Europe, and the Reality home delivery operation. In 2000 ARG also formed a financial services unit to offer store credit and insurance to its customers. Argos had stores in Ireland, the Netherlands, Austria, Switzerland, and Sweden.

Purchase of Homebase: 2002

In December 2002 GUS bought Homebase, a 272-store chain that had been founded as a unit of J. Sainsbury supermarkets in 1981 and had grown to become the third largest home improvement retailer in the United Kingdom, in part through the 1995 acquisition of the larger Texas chain from Ladbroke Group plc. In 2001 Sainsbury sold Homebase for £750 million to private equity firm Schroder Ventures, which sold it a year later to GUS for £900 million. Homebase was immediately incorporated into ARG, which took advantage of overlapping product categories with Argos including furniture, housewares, gardening necessities, and power tools to get better volume pricing from manufacturers.

In February 2003 Argos was fined £17.28 million by the Office of Fair Trading for agreements made with Hasbro UK Ltd. and Littlewoods Ltd. between 1999 and 2001 to fix prices for the retail sale of Hasbro toys and games. The fine was later reduced to £15 million on appeal. In May GUS sold ARG's mail-order shopping businesses in the United Kingdom, Ireland, and Sweden, as well as the Reality fulfillment unit, for £590 million. Although they had contributed £1.7 billion to the firm's annual revenues, profits had fallen in recent years.

During 2003 the company introduced the new Argos Extra catalog, which offered several thousand additional products not available in regular stores, for a total of 17,000 separate items. The 1,740-page catalog was initially available in select stores only, but in the summer of 2005 it was expanded throughout the chain, though the full line was stocked in only about 190 of the firm's 600 stores. In 2004 the Homebase Furniture Extra catalog was also introduced, and it, too, was made available nationally in 2005.

In 2005 Argos bought 33 shuttered Index catalog stores from Littlewoods and rebranded them as Argos outlets. Index had been Argos's only direct British rival in store-based catalog merchandising, and the loss of more than 100 Index locations helped solidify the firm's position as the leading general merchandise retailer in the United Kingdom.

In the early 2000s Argos invested heavily in supply chain infrastructure so that it could reliably offer consumers the ability to order goods online or by phone for pickup at a nearby store or for delivery to their home. Small items were shipped by standard package delivery services, while large ones were delivered by Argos Direct.

Nearly three-fourths of U.K. households made at least one purchase per year from Argos, with two-thirds having a copy of its current catalog. The firm printed 35 million copies annually of the twice-yearly, 1,700 page shopping guide, which were distributed only at its stores, as well as five million copies of Homebase's 80-page furniture catalog. The company took four million orders per year online or over the phone.

In early 2006 Netherlands-based Wehkamp, the last GUS mail-order shopping business, was sold. ARG now consisted of just Argos, Homebase, and their shared financial services unit.

Spinoff of Home Retail Group: 2006

In September 2006 the Argos Retail Group's name was changed to Home Retail Group (HRG), and in October it was spun off from GUS, which was splitting into two units, the other being credit check provider Experian. During the year the firm also launched a separate catalog of housewares called Home and announced plans to offer an Argos-brand credit card as a joint venture with Barclays Bank plc.

In early 2007 HRG reached an agreement to franchise the Argos store concept in India as Hypercity-Argos through a joint venture formed by Shoppers Stop Ltd. and Hypercity Retail, and also bought a one-third stake in new Irish housewares retailer Home Store + More. Modeled after the successful U.S. chain Bed Bath & Beyond, it would be expanded gradually in Ireland and the United Kingdom, with three stores slated for opening in 2007.

Sales for HRG's fiscal year ended in March 2007 were £5.85 billion, with an operating profit of £359.4 million. Argos accounted for £4.2 billion of total revenues, and Homebase £1.6 billion. Internet sales made up 16 percent of Argos's sales, with telephone or text-messaged orders comprising 8 percent. The firm delivered 22 percent of orders directly to homes, and the Argos web site was the second-most trafficked shopping site in the United Kingdom after Amazon.com. Top sellers included televisions and video game systems. Homebase sales were growing after several static years, with furniture and kitchen remodeling products especially strong.

In the fall of 2007 Homebase acquired 27 stores from rival Focus DIY for £40 million, which would be rebranded as Homebase stores in early 2008, while Argos began offering installation services for TVs and home theaters at 60 of its outlets. Argos and Homebase operated 680 and 310 stores, respectively, all located in the British Isles. These numbers were expected to grow by 30 and 15 units per year, with the goal being totals of about 800 outlets for Argos and 450 for Homebase.

Nearly 35 years after the first Argos catalog showroom store opened, the Home Retail Group plc had ascended to the top ranks of U.K. retailing. Argos was the number one seller of a wide range of items including jewelry, toys, and small appliances, while Homebase was the number two home improvement retailer. Plans were in place for continued expansion of both chains, while additional growth was expected to come from Internet sales, and new ventures such as Home Store + More.

Principal Subsidiaries

Argos Ltd.; Homebase Ltd.; Argos Distributors (Ireland) Ltd. (Republic of Ireland); Homebase House and Garden Centre Ltd. (Republic of Ireland); Home Retail Group Card Services Ltd.; ARG Personal Loans Ltd.; Home Retail Group Insurance Services Ltd.; Hampden Group Ltd.; Home Retail Group (Hong Kong) Ltd.

Principal Competitors

DSG International plc; Kingfisher plc; John Lewis Partnership plc; Woolworths Group plc; Tesco plc; Focus (DIY) Ltd.; Travis Perkins plc; Inter Ikea Systems B.V.; Toys 'R' Us Ltd.; ASDA Group Ltd.; The Carphone Warehouse Group plc; Signet Group plc; Goldsmiths Ltd.

Further Reading

"Argos to Close Its Four Chesterman Stores," Reuters News, March 15, 1993.

"Careers: Company CV--Argos," Marketing, July 4, 2002, p. 46.

Churchill, David, "Argos Plans £17 Million Stores Expansion," Financial Times, April 18, 1986, p. 10.

Duckers, John, "Argos and Homebase Set for Ambitious Expansion," Birmingham Post, May 3, 2007, p. 22.

Friars, Austin, "GUS Wins Argos Battle," DIY Week, May 1, 1998, p. 6.

"GUS Snaps Up Homebase," BBCNews, November 21, 2002.

"Home Retail Says Argos to Enter India; Buys Stake in Irish Retailer," AFX Asia, February 23, 2007.

Kleinman, Mark, "Can Argos Hold onto a Position of Strength?" Marketing, September 27, 2001, p. 13.

Lindsay, Robert, "New-Look Argos May Have Got It in the Bag," Birmingham Post, June 18, 1999, p. 23.

MacDonald, George, "Argos Thinks Big," Retail Week, August 5, 2005.

Milmo, Dan, "3,200 Jobs Cut As Littlewoods Sells Index," Guardian (London), April 18, 2005, p. 23.

Olins, Rufus, "Dr. Mike Smith--The Quiet Man Who Makes Argos Boom," Sunday Times, August 26, 1990.

Parkes, Christopher, "Argos Seeks Sites for 400 New Stores," Financial Times, December 15, 1988, p. 8.

Quinn, James, "GUS Demerger Is Poised to Produce Two Rising Stars," Daily Telegraph, September 23, 2006, p. 6.

Rigby, Elizabeth, "Argos Poised for Solo Flight After Shedding Its Ugly Duckling Image," Financial Times, October 8, 2005, p. 20.

Slingsby, Helen, "Argos Is Glad to Be Grey," Marketing Week, May 24, 1991, p. 34.

Sparks, Leigh, "A Catalogue of Success? Argos and Catalogue Showroom Retailing," Service Industries Journal, March 1, 2003, pp. 78-111.

Urry, Maggie, "Argos Brings Solid Charm to Woo Market," Financial Times, March 16, 1990, p. 27.

— Frank Uhle