Monday 24th Oct 2016 - Logistics Manager

Argos trials new distribution model

Argos is running trials of a hub and spoke distribution model as it repositions the business for a digital future. This model is designed to enable immediate collection on a selection of lines and next day collection on an extended range of products which are available online.

Multi-channel sales now account for 51 per cent of Argos’s total sales – up from 48 per cent in 2011-12, parent Home Retail Group revealed in its full year results. 

The group said stores would remain a key component of the Argos multi-channel model.  The fastest growing channel was online Check & Reserve, which grew 11 per cent to represent 31 per cent of total sales.

“The key to Argos’ fulfilment advantage will be a hub and spoke distribution model, use existing Argos stores and replenishment capabilities.  This will enable Argos to offer market-leading immediacy of fulfilment on a wider range of products.  Trials began in January 2013 to test both the operational and customer offer aspects of this new network.”

Over the next five years Argos has around 275 store lease renewals or break clauses due.   The plan is to focus on improving the store network by relocating or closing some older stores and opening some new stores if attractive sites are identified. 

In the last financial year there were 11 store closures and two relocations, leading to a reduction in the store portfolio to 737 stores.  This level of store closures was consistent with its plans at the start of the year.  In the 2013/14 financial year, it is expected there will be around 10 store closures, where the lease has come to an end, alongside a number of additional stores that are likely to be relocated to better sites.

Home Retail Group, which also owns Homebase, has been working to reduce operating and distribution costs. Last year these fell by £21m to £1,908m, as underlying cost inflation was more than offset by further cost savings.

Chief executive Terry Duddy, said: “The group’s operational and distribution cost base peaked at £2,050m in the 2008/9 financial year.  Since this time underlying cost inflation has run at 1-2 per cent per annum, adding approximately £125m to the Group’s cost base over the last four years. 

“We have more than offset this cost increase with cost savings over the same four-year period of approximately £267m, to achieve a reported cost reduction of £142m over the same four-year period, and a reported cost base of £1,908m in the 2012/13 financial year. 

“These cost reductions have been achieved through a rationalisation of the distribution network, store-based management restructuring programmes, headcount reductions in central office and numerous other cost efficiency initiatives together with a lower level of unit volumes.”

The group is also working on plans to accelerate the multi channel capability of Homebase. Operating profit at Argos rose by £6m at Argos to £100.3m. However, Homebase saw operating profit halved to £11m for the year to 2nd March.