Will a change of agency help put Argos back on track?

Richard E Grant’s rock star character Zac may find that his supply of Argos goods, sourced by his enterprising assistant Pam, is about to dry up as the retailer is on the verge of appointing a new advertising agency.

Argos is in final discussions with Clemmow Hornby Inge over its &£35m advertising account. The move signals the end for the Zac and Pam campaign, created by incumbent Euro RSCG London. Euros pitched to retain the business, along with DDB London and WCRS.

The agency review comes at a tough time for the retailer, which earlier this year experienced its first fall in underlying sales since 1999. Like-for-like sales for the three months to June 30 were down by four per cent, while overall sales were up just two per cent.

Analysts say it is too early to say whether the slide is down to anything more than the general slowdown in consumer spending.

Mintel retail analyst Richard Perks says: “It is always difficult to tell at such an early stage whether there is something more going on. Retail is difficult, but it has not been that difficult: the grocers have been doing well. However, consumers are putting off spending on things they don’t need to buy.”

It is in the non-food and non-clothing categories – which are both strong trading areas for Argos – that the downturn has been particularly pronounced. Argos has tried to fight back by revamping its floor area to display more of its homeware and furniture ranges. The retailer is also rolling out its Argos Extra catalogue, which includes an additional 3,000 products on top of its 17,000-product range.

It has also implemented a range of cost-cutting measures, such as announcing plans to replace 500 store manager roles with service co-ordinator jobs earlier this month. Although the managers affected are being invited to reapply for the new jobs, redundancies costing about &£4m are expected.

Seymour Pierce retail analyst Rhys Williams says that the decision was taken in light of the difficult economy and is a cost-saving exercise that will also help improve customer service.

In the long term, Perks says that Argos, which had experienced major sales growth until earlier this year, is “nearing the limits of growth”.

The retailer is rebranding 33 Index stores, which it acquired from Littlewoods, under the Argos name. This will bring its total number of outlets to more than 600. Off the high street, it has successfully developed alternative routes to market. Sales at its home delivery operation, Argos Direct, grew by six per cent in the first quarter of this year and now account for 26 per cent of Argos’ revenue. It also reported a 24 per cent increase in internet sales, which account for seven per cent of total revenue. A further six per cent of sales have come from its “Check and Reserve” multi-channel ordering facilities.

While the downturn continues, it is unlikely that holding company GUS will proceed with plans to demerge the Argos Retail Group, which also includes Homebase. It no doubt hopes that the new advertising, which is likely to break in time for Christmas, will boost sales to help put those plans back on track.

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