Argos sales slump 9.6% as fears for retail sector grow

There was more grim news from the high street on Thursday as a fresh slump in sales at the catalogue-shop chain Argos fed fears of deteriorating consumer confidence.

Retail stocks were sent into a spin by the dismal update from Argos's owner, Home Retail Group, with the chief executive, Terry Duddy, blaming the poor performance on a 20% plunge in sales of electricals – particularly televisions and video games – during the spring.

Duddy said trade at Argos had been "more difficult and volatile" than the group had expected during the three months to 28 May, when it experienced a "further significant decline" in demand for electrical goods, which comprise a substantial part of its business. "We have seen another circumstance where customers have tightened spending on big-ticket items," he said.

Shares in Home Retail Group tumbled 14% to 175p and Matthew McEachran of Singer Capital Markets predicted that his fellow analysts would slice up to £20m off their profit forecasts for the year.

The gloomy snapshot of the technology market also prompted investors to reassess the prospects of the electronics retailer Dixons, which lost 9% to 17.5p.

Argos is Britain's biggest retailer of general merchandise and sells more TVs than any other retail group. Duddy said three-quarters of the 9.6% decline in like-for-like sales in the quarter was down to poor sales of consumer electronics.

It was an inauspicious start to the year for Argos after a fall in profits of 20% last year. Analysts say the chain is being battered as households rein back their spending. The retailer also faces serious pressure from supermarkets, which are increasingly beginning to operate similar home shopping-style businesses.

Freddie George, a Seymour Pierce analyst, said: "Argos remains under pressure from a weak consumer environment while the food retailers continue to grab share in its core markets."

Duddy, however, blames Argos's problems on the fact that working-class families are still in effect trapped in a recession, a situation that is being magnified by the recent spike in food and fuel prices. Argos shoppers are largely drawn from the core mass market – the C2 and D socio-economic groups, which have not benefited as much from big falls in mortgage rates as those on higher incomes. For many families, Duddy said, buying an iPod or iPhone was now too much of a stretch on birthdays.

To combat falling sales, Argos is adding books and children's clothing to its range and will launch its own TV shopping channel this month.

It has also been forced to cut prices. Duddy highlighted some dramatic price decreases, with 32-inch flatscreen TVs now selling for £200 and 37-inch sets for under £300. "You've got to do promotions," he said. "There's some very sharp pricing in TVs and video games." The tactic has helped Argos hold market share but has dented profit margins.

Duddy said there was evidence of a two-speed retail market, because low interest rates meant "the mortgaged are still better off". Like-for-like sales at Home Retail Group's Homebase DIY chain, which attracts wealthier shoppers, were up 1.6%.

Source : Zoe Wood - The Guardian
www.guardian.co.uk/business/2011/jun/09/argos-sales-slump-fears-for-retail-sector