- Sainsbury’s rejects bid from Chinese retailer JD but this is unlikely to be the end of takeover interest
- Argos has a strong brand and might be of interest to AO
- How a separation from Sainsbury’s might work
Dan Coatsworth, investment analyst at AJ Bell, comments:
“The firing gun has effectively been triggered on the sale of Argos. Sainsbury’s might have rejected an offer from Chinese retailer JD, but the fact it hasn’t come out and said the business isn’t for sale at any price is telling.
“Sainsbury’s has talked up a food-first strategy for some time, implying that Argos wasn’t core to its long-term plans. The general merchandise business hasn’t been doing that well for a few years, and it always felt like Argos concessions were hidden away in the corner rather than being a prominent part of a Sainsbury’s store.
“Sainsbury’s rejection statement gave the impression that Chinese retailer JD’s offer wasn’t in the best interests of shareholders, staff and stakeholders. That implies the price wasn’t high enough, there was no guarantee about retaining jobs, and nothing to reassure suppliers who had long-standing relationships with Argos that they would still be used.
“This shows Sainsbury’s management is caring and doesn’t want to sell Argos to a party who only has its own interests at heart.
“Splitting Argos from the supermarket group won’t be easy, but not impossible. Sainsbury’s has gradually reduced the number of standalone Argos stores in the UK, relocating more of them inside its supermarket stores. There is still the remnants of a high street store estate from which to rebuild a physical presence, but if the new owner wants to be digital-only there aren't too many physical shops to close down.
“Sainsbury’s is unlikely to let a new owner continue operating inside its supermarket stores, particularly as it could use the floor space to expand its food range, which would align with its strategic priorities. That would mean a new owner must either rely on the remaining store estate, open more stores, or think hard about making Argos a digital-only brand.
“A new owner of Argos could strike deals with other retailers to set up in-store collection points. A third-party retailer might welcome the additional revenue from holding Argos inventory in its stores. If that proved impossible, an alternative route is to simply use collection lockers such as InPost if someone didn’t want an item sent directly to their home.
“Part of Argos’ unique selling point is being able to deliver goods quickly to customers, many on the same day. Removing that USP because of a takeover would mean Argos would lose its edge over many retailers.
“AO might be interested in owning Argos as a digital-only brand to broaden its interests beyond electrical appliances. AO already has a strong logistics network and a reputation for speedy service. Its overseas ventures didn’t work out, so it retrenched and focused on getting the UK arm in a stronger position. That’s now been achieved so AO will be looking at strategic options for the next chapter in its career.”
