Monday 26th Sep 2016 - Logistics Manager

Argos completes ‘hub & spoke’ distribution network

Argos has completed the national roll-out of its ‘hub & spoke’ distribution network which enables same day collection of some 20,000 products, parent Home Retail Group has revealed in its annual results. However, it plans to refine its stockholding policy and analytics maximise the sales potential of this new model.

The change is part of the “Argos Transformation Plan” which HRG chief John Walden said “will continue to be the group’s principal source of shareholder value over the medium term”.

The plan was launched in October 2012 after several years of eroding performance at Argos, and is designed to enable it to take advantage of the move to online shopping.

In October last year, HRG introduced the Homebase Productivity Plan, that includes accelerating its digital and fulfilment capabilities and leveraging the investment already made at Argos.

“Replacing the technology infrastructure supporting Argos remains the largest element of our future investments, and the most complex challenge of the Argos Transformation Plan,” said Walden.

“Our teams have made good progress introducing new systems such as real-time stock visibility across our ‘hub & spoke’ store network and new online payment and content management systems. Several critical components of the infrastructure remain to be developed and introduced over the plan term.

“In addition to new applications, our team has faced unanticipated pressure on the resilience and scalability of existing systems due to extreme online volumes and volatility during the FY15 peak trading period. Overall, although the journey so far has been more challenging than originally envisioned, our team is adapting well and the end state of the group’s technology infrastructure will be a unique advantage.”

Internet sales now represent 46 per cent of total Argos sales, up from 44 per cent in the previous year. Mobile commerce was up 38 per cent to 25 per cent of total Argos sales. Homebase’s multi-channel sales grew 10 per cent during FY15 to account for 8 per cent of total sales.

“I am particularly pleased with our progress on product fulfilment,” said Walden.

“The speed and cost of providing customers with the products they purchase is increasingly important. With our complement of distribution centres, a national network of stores, frequent stock replenishment and economies of scale, we believe we have an opportunity to build a competitive advantage in product fulfilment. In FY15 Argos added to our capabilities by scaling its unique ‘hub & spoke’ distribution model nationally.

“This enables us to stock extended product ranges in c.150 larger ‘hub’ stores, and make them available for faster fulfilment in local markets. Argos also began to trial express overnight delivery on larger items, and ‘hub to home’ delivery which will extend our ‘hub & spoke’ capability with an Argos-operated local delivery network. We have more to learn about stock optimisation across this new network, as well as the operating challenges of local delivery, but we are excited by the potential of these capabilities.”

The group said that access to a wider range of products had resulted in sales in ‘spoke’ stores outperforming the estate overall, but as ‘spoke’ store demand increased, there was an adverse impact on ‘hub’ store product availability and thereby sales.

During FY16 Argos plans to refine its stockholding policy and analytics to optimise working capital and maximise the sales potential of this new model.

Argos also plans to offer its distribution network to other retailers for click and collect. For example, it offers this service to eBay merchants.

Like for like sales at Argos were up 0.6 per cent in the year to 28th February. Total sales were up 1.1 per cent at £4.1bn. Benchmark operating profit was £129.2m up from £112.3m the year before.

Like for like sales at Homebase were up 2.3 per cent but total sales were down 0.7 per cent at £1.48bn. Benchmark operating profit rose from £18.9m in 2013-4 to £19.8m.