Complementary strategies

Argos Retail Group was formed in June 2000 and now consists of a number of multi-channel retail businesses, all with clear strategies for organic growth. The revitalisation of Argos has continued since its acquisition by GUS in 1998.  It is now one of the leading general merchandise retailers in the UK.
Year to 31 March 2002
Sales in £ mio
Operating profit  in £ mio
Argos
2,847
204.0
UK Home Shopping
1,607
33.6
Financial Services
11
(4.8)
Home Shopping Europe
238
22.4
Total
4,702
255.2
Homebase is the third largest DIY retailer in the UK, behind B&Q and the Focus Wickes group. As the second largest DIY brand, it has a more up-market, higher income, female customer base than its competitors. Its product offer is focused on the softer (or more decorative) end of DIY, on home furnishings and gardening.
Sales in the year to 2 February 2002 comprised 25 per cent core DIY products, 32 per cent decorative products, 25 per cent gardening and 18 per cent homewares. It currently has 272 mainly out-of-town stores (1 m sq feet of selling space), biased to the more affluent South-East. Its Spend and Save loyalty card has 4.3m active cardholders.
Homebase’s recent financial performance is shown in the table below. Further strong progress is expected in the current financial year, driven by like-for-like sales growth of six per cent in the year to date, by a small improvement in the gross margin due mainly to better buying, and by tight control of costs in both stores and head office functions. Assuming that there is a continuation in the pattern of trade seen in the period to date, Homebase is forecast to make operating profit before financing charges, tax and exceptional items of approximately £100 mio in the year to February 2003, GUS sais.
Year to end January/early February
2000
2001
2002
Number of stores
287
283
273
Selling space (in m² mio)
1.039
1.050
1.006
Sales in £ mio
1,197
1,273
1,380
% growth
11 %
6 %
8 %
Like-for-like % growth
12 %
6 %
10 %
Operating profit  in £ mio*
55.0
26.5
85.9
% Operating margin
4.5 %
2.1 %
6.2 %
* Operating profit is before exceptional costs but after e-commerce costs (£1m in 2000, £15m in 2001 and £3m in 2002)
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GUS believes that the acquisition of Homebase has a compelling strategic rationale for the following reasons: 
Homebase has a strong brand in DIY
Homebase has a twelve per cent market share and high brand awareness. It leads on choice at the soft end of the DIY market, for example, for home textiles, decorating projects and gardening. The Homebase brand is particularly strong with higher income and female customers.
Homebase is moving into home furnishings
Homebase’s brand strength and customer franchise is allowing it to develop beyond DIY into the growth areas of furniture and homewares.  This is easier for Homebase than other DIY retailers who are more concentrated on professional, heavy end DIY products, targeting the trade or serious buyer for major repair, maintenance and improvement projects.
Homebase operates in long-term growth markets
Argus management believes that the DIY and home furnishings markets that Homebase serves will continue to show above average growth rates in the future:
The DIY market in the UK is valued at £ twelve bn, and has grown by eight per cent per annum over the last five years. It has undergone considerable consolidation in recent years;
The home furnishings market (comprising furniture and homewares) is valued at £ 20 bn and has grown by seven per cent per annum over the last five years.
Home enhancement market
Market size 2001 £ bn
5 year (1996-2001)
Home furnishings
Furniture
11
7 %
Homewares*
9
7 %
DIY
Core
7
8 %
Decorative
2
9 %
Gardening
3
7 %
Total
32
7 %
* Defined as Soft Furnishings e.g. textiles, bed and table linen, curtains and cushions, and Housewares e.g. table and glassware, kitchenware and lighting