<div id="readability-page-1"><div><div><div><div><p>Getting your hands on a new Argos catalogue was once an annual right of passage for British households.</p><p>The thick paper tomes, which were phased out by Argos’ owner Sainsbury in 2020, have since been replaced by more techy digital screens in store – a move which has cut costs but alienated some of its traditional shoppers.</p><p>John, 76, shops at Sainsbury’s Haringey branch in north London but says he doesn’t really understand how to order off the screens – and so hasn’t shopped at Argos for years.</p><p>“I used to be able to just do it in the catalogue,” he says. “I’m just not very good with computers.”</p><p>Ditching the catalogue is just one example of the radical changes Argos has faced since it was acquired by Sainsbury’s in 2016 – as well as how once-loyal shoppers have come to snub the brand.</p><p>At the time of the audacious £1bn takeover, Sainsbury’s then-boss Mike Coupe was unequivocal about the benefits, saying the catalogue giant would “future-proof” the supermarket and hand it “more ability to compete”.</p><p>But a decade on, the gamble looks to have floundered and Sainsbury’s bosses are now less certain over whether Argos is such a good fit.</p><p>Sainsbury’s Argos headache highlights the challenges of merging two massive businesses – as well as the radical changes to the retail landscape which have left Argos behind.</p><p>In the City, rumours are rife that Argos, a one-time FTSE 100 giant founded in 1973, will be spun off within the next year.</p><p>Last summer, The Telegraph revealed that it had been holding talks with Chinese retailer JD.com. Even whilst those talks collapsed, today the names of various new suitors are still bandied about.</p><p>Simon Roberts, Sainsbury’s chief, has done little to dampen speculation that Argos will be sold. Speaking to analysts in November, he said the discussions with JD.com had been beneficial.</p></div></div><div><div><p>“We learnt that Argos is separable,” Roberts said. “It’s not something that’s wholly straightforward immediately, but it’s something that we identified a route through.”</p><p>A move by Sainsbury’s to carve off Argos would make a lot of sense. Under Roberts, who took over at the helm of Sainsbury’s in 2020, the supermarket has been refocusing back on its grocery roots, with Roberts pioneering a strategy dubbed “Food First”.</p><p>As part of the push, Sainsbury’s has been focused on adding extra fresh food options back into stores, while selling off various “non-core” businesses, including its retail banking business which it sold to NatWest.</p><p>Last year, Sainsbury’s closed 61 cafes and removed hot food and pizza counters to make more space for fresh produce.</p><p>Other parts of the store have similarly been freed up, with LloydsPharmacy shutting all 237 of its pharmacy branches inside Sainsbury’s in 2023.</p><p>But Argos is a slightly different proposition to other areas where Sainsbury’s has scaled back, according to analysts.</p><p>“It would be incorrect to say Argos is non-core because that would imply no management priority or capital would be applied,” says Shore Capital’s Clive Black. “But it is not as important as food to the group, where investment now includes the opening of new stores.”</p><p>At the same time, Sainsbury’s has already taken steps to shrink its Argos footprint, shutting a number of standalone Argos stores in recent years, citing evidence that a growing portion of demand for its ranges of kettles, phone chargers and homeware comes from online.</p></div></div><div><div><p>Many Argos orders are collected in concessions in its larger supermarkets. Still, not everyone is convinced that these concession sites represent a good use of space.</p><p>John Allan, the former chairman of Tesco, says his understanding is that “Argos has been a long term disappointment, although the rest of Sainsbury’s is doing well”.</p><p>In his view, Sainsbury’s could learn something from its larger rival Tesco, where Allan says bosses have shrunk the number of large electrical goods sold in stores in recent years.</p><p>He says this is a natural shift as large electricals is “pretty difficult” area for supermarkets to compete in.</p><p>“Most industry observers would not be surprised if Argos was sold or progressively run down,” he added.</p><p>Whether an offer would come along for the business is another matter. In Sainsbury’s last annual report, Argos was valued at £344m – significantly less than what it paid for Argos owner Home Retail Group in 2016.</p><p>Meanwhile Argos recorded a pre-tax loss of £223m for the 12 months to March 1, according to Companies House filings. Swinging from a £37m profit a year earlier.</p><p>Although this loss largely reflected one-off costs rather than its underlying performance. Argos recorded year-on-year sales growth in the second half of that financial year.</p></div></div><div><div><p>Regardless, in Sainsbury’s’ latest annual report, Roberts admitted it had become more difficult for Argos, saying the chain had “felt the impact of customers being more careful with their spending and tough, competitive market conditions”.</p><p>A spokesman for Argos said the brand was continuing to “strengthen our online offer and improve our digital customer journey, driving higher app usage and basket size and have a strong trading plan in place”. </p><p>The spokesman added: “We are committed to delivering the strongest and most successful future for Argos customers and colleagues and our ‘More Argos, more often’ transformation strategy is delivering good progress.”</p></div></div><div><div><p>However, analysts at Deutsche Bank say there are fundamental problems for Argos – with their research suggesting the brand has since been hit by a sharp decline in sales in the 2026 financial year. Sainsbury’s reports full-year results in the spring.</p><p>The general merchandise brand is facing “structural challenges from low-cost online competition and low customer order frequency”, the bank’s analysts said.</p><p>In its research, Deutsche Bank found that searches for Argos online have gradually declined in the past three years, including over the important Christmas period.</p><p>In last year’s festive run-up, searches were down around 30pc on the same period in 2022.</p></div></div><div><div><p>In that time, Argos has come under increasing pressure from newer upstarts including China’s Temu, which have begun to gain traction.</p><p>If Sainsbury’s split off Argos, the Deutsche Bank analysts said the supermarket would be a “much more predictable business”.</p><p>Still, there would be the question of price. “It’s safe to say it’s worth far less than its purchase price in 2016,” says Deutsche’s Benjamin Yokyong-Zoega.</p><p>Any split-off would also not come without its hurdles. Although Sainsbury’s says it has mapped out a way that, feasibly, Argos could be separated out, insiders argue there are sticking points.</p><p>For one thing, Argos is embedded within Sainsbury’s stores, meaning a carve out would be complex for any potential suitor – including its scores of concessions within stores.</p></div></div><div><div><p>Meanwhile, technology is one area where the two businesses are entwined, having initially struggled with integration.“Unpicking integrated IT is super hard,” says one grocery chief.</p><p>For example, Asda’s £1bn IT carve-out this year from Walmart left it with empty shelves, online delivery issues and outages on the company’s new website and app.</p><p>Staff, too, would be a tough area to separate out, with insiders questioning “who leaves Sainsbury’s”.</p><p>In some areas, Sainsbury’s has already taken steps to split out teams, separating its own commercial teams from Argos.</p><p>Early last year, it said Rhian Bartlett, its chief commercial officer, would work separately from Graham Biggart, Argos’s managing director. It suggested this was done to simplify the business.</p><p>However, there would still be “some heavy lifting to come”, says one senior grocery executive.</p><p>They suggest Roberts may be keen for the challenge in an effort to cement his time as Sainsbury’s chief executive and create a lasting legacy within the business.</p><p>For now, all Roberts will say is the company has “made progress in organising ourselves, to make sure that Argos has what it needs and Sainsbury’s has what it needs”. </p><p>“Clearly, that’s one of the things that we continue to drive through,” he told analysts in November.</p><p>Even if a sale or split is no longer imminent, Roberts seems to be considering his options; his view is much more pragmatic than his predecessor Coupe.</p><p>Coupe may have argued that Argos would make Sainsbury’s a “much stronger business for the future” 10 years ago. Now that the future is here, Roberts appears much less sure.</p></div></div></div></div></div>

<p>Sainsbury's acquisition of Argos in 2016 aimed to enhance competitiveness, but the integration has faced challenges, leading to speculation about a potential spin-off. The shift from traditional catalogues to digital screens has alienated some customers, and Argos has seen a significant decline in value, with a pre-tax loss of £223m reported. Sainsbury's CEO Simon Roberts indicated that Argos is separable, aligning with the supermarket's strategy to refocus on core grocery operations. Analysts suggest that selling or downsizing Argos may be a viable option as Sainsbury's continues to streamline its business.</p>

How Argos became Sainsbury’s biggest problem