In the three years since the demise of Woolworths, a.k.a. Woolies, UK-based licensors and licensees stand divided on whether or not any retailer has actually managed to capture the 20% share of the overall market that the former retail giant commanded, let alone its expected incumbent Argos. Part of that is due to a rather grim overall outlook for British retail—characterized by low footfall and declining sales as a result of higher inflation, job losses and low wage growth. A recent survey from UK-based financial information services firm Markit reveals that 40% of British households saw their income fall between July and August—at a faster rate than at the height of the recession in 2009.
“Argos was reasonably successful in grabbing a piece of the market, but the main beneficiaries of Woolies’ exit were the grocers—Tesco, Sainsbury’s and Asda,” says Nick Austin, chairman and founder of Vivid Toy Group. “I think the reason for that is two-fold. First, moms are already in the stores every week buying groceries, and second, grocers are pushing really hard to increase their market share. They are committed to increasing their non-food and toy space and the squeeze on margins is so intense, it may have actually contributed to Woolies’ demise.”
Austin points to Tesco as an example of a retailer that has really capitalized on the absence of Woolworths. It’s catapulted itself to the position of number-two in the toy market behind Argos—a big change from just five years ago. “Tesco has a stated aim to become number one. And it’s making good on that by being aggressive in opening new stores, particularly non-food, and putting larger toy spaces in-store,” notes Austin.
What’s more, the recent recession has trained increasingly price-conscious consumers to look for offers and deals in what amounts to a self-destructive spiral for retailers. And that’s where the grocers can compete on a level that many can’t. “It’s difficult to compete with grocers who are prepared to run and promote toys on single-figure margins if they have to,” says Austin. “They’re able to sell product at lower margins using food sales to subsidize non-food products.”
Aggressive as they are, the picture isn’t much rosier for grocers at the moment than it is for high street retailers. In late August, Walmart’s UK outfit Asda claimed high fuel prices were keeping customers away and estimated that families have on average US$9 less in disposable income each week than compared to last summer.
Meanwhile, Argos—a brand synonymous with choice and value—is fighting to maintain its position as the go-to retailer in times of economic difficulty. Its strategy appears to center on bolstering its online presence, investing in advertising to drive in-store pickup and expanding into new categories.
“The Argos website is really great, so I imagine it will become even more important to its business, with online taking over,” says Jennifer Lawlor, SVP of strategy and planning for consumer products at Zodiak Rights. With 400 million visits last year and about half of its US$6.4 billion in annual sales originating online, Argos is the most-visited high street website. In July, the catalog-based retailer launched a US$6.3-million ad campaign— including digital, social, TV ads, VOD, radio and outdoor —encouraging web-savvy shoppers to order merchandise online and pick it up in-store the same day from one of its 750 outlets.
“Argos’ saving grace is that it has a strong internet presence,” says Austin. “People said that catalog would never survive, but it has, and it’s a format that can be easily transferred to the internet. Argos has changed its business model to benefit from internet sales, and now one-third of all Argos toy sales originate online.”
But if Argos wants to bolster that presence, some industry pundits believe it will need to make the user’s journey simpler and easier to navigate. “Its latest catalog carries a small range of books, with a flash on the page to say there is more available online, so it’s using the catalog as a teaser,” says Susan Bolsover, category director for publishing and paper products at CPLG UK. “But I found it difficult to find the books online—they were a bit buried. It should be a one-click user experience, and simple. Argos has work to do.”
Earlier this year, the retailer announced that it would expand its product carriage into children’s apparel and increase its online book selection from 500 to 5,000 titles, having previously sold a small range of children’s books through its in-store catalog. “It’s a sea-change,” says Eric Huang, head of licensing for Penguin Children’s Books UK. “In the past, licensed books weren’t as much of a focus. Argos is excited about Moshi Monsters and is looking at Peppa Pig as well. But it’s really about giving the retailer something exclusive—primarily bundles to hit gifting price points.”
Bolsover agrees that the move into publishing is a welcome one. “Waterstone’s is our last real book chain on the high street, so Argos has moved into a space where its big competitors are Amazon and the grocers, which have made a strident move into kids licensed publishing,” she says. “The issue we have with the grocers is that they can’t carry the depth and range that Waterstone’s can. Argos has stores, a large catalog business and a strong online presence—which makes it a different proposition as a retailer.” The key issue here is that the move into publishing came at the end of July, so at press time, the industry had yet to see any significant sales figures emerge. “The jury is still out,” says Bolsover. “Can you really sell a book from a catalog page? Does it need to increase its online presence or start selling product physically in its stores?”
What’s more, publishing as a category has been on adecline, due in part to a diminished presence on the high street. Meanwhile, online traffic is increasing—witness Amazon’s widespread favor in Europe—and downloads to eReaders are on the rise, at least in the adult space. “No one is doing anything significant and revenue-generating in the digital space for kids—it’s an add-on,” says Bolsover. “There’s an opportunity for Argos to look at this space and make itself a destination for kids downloads.”
Even with licensors and manufacturers keen on having another channel for licensed apparel and books, many question Argos’ ability to compete with established leaders in the space, like Amazon (books) and the grocers (affordable apparel). “Apparel is an interesting one for Argos, as the UK licensed apparel market is tough as ever with suppliers being subject to increases in raw material costs and tougher retailer margins,” says Ian Downes, founder of indie agency Start Licensing. “The grocers or value stores can also react to price changes more quickly.”
Consumer buying patterns in the category also present a hurdle. “Argos has a lot of stores and consumers that buy off the page due to its excellent delivery service. While there has been a lot of very successful off-the-page selling for apparel in other European territories like at Carrefour in France, Argos is not known for apparel,” says Tim Juckes, category director for apparel at CPLG. “In licensed apparel, you have to be in-line with fashion. Argos has two main catalogs each year, while fashion has at least four seasons, so there’s a challenge that has to be overcome right away. If Argos picks a license that doesn’t work in apparel, it’s left with huge overstock. But the orders have been massive, and licensees are breaking out the champagne already.”
Lawlor concurs. “Apparel is particularly tricky because it’s a ‘try it before you buy it’ category,” she says. “But the biggest challenge is the way in which it sells. Argos can’t provide an outlet for the impulse purchase that Woolies had.”
And impulse buys are becoming increasingly significant in the kids product space in the UK at the momment. They’re generally POS items and priced to sell at the cash, not via catalog. “Argos is not good at selling product under US$5 at retail—things like collectibles and blind bag products,” says Austin. “You’re not going to queue up, fill out a form and go through the whole process for an impulse purchase that sells for US$1.99. If that is the hot button—which it is over here at the moment—that doesn’t work for Argos, but it does for the grocers and high-footfall retailers.”
On the in-store front, Downes notes an increased commitment to marketing, despite a low footprint. “In-store, Argos has started to use more impactful POS materials to sell product and tap into impulse purchasing,” he says. “It uses window displays as a call to action, but I think there is scope for it to leverage licenses to create more in-store events and stimulate consumer interest. For example, it could look at more exclusive products, more linked purchases and perhaps create more themed character shopping days.”
But Austin claims that Argos has innovated, particularly with the catalog, increasing the page allocation for toys (245 pages in the 2011 fall/winter edition). “It’s also changed the way it merchandises on-page, with themed character pages that include a logo, web address and product range,” he says. “It’s also starting to use QR codes on catalog pages for people to access promotions.”
It’s too soon to tell if these strategies will pay off. Earlier this year, the retailer reported a 9.6% fall in like-for-like store sales to US$1.3 billion during the 13 weeks between February 27 and May 28, noting a slump in demand for TVs and video games—with video game sales down 25%.
While Argos remains under pressure from a weaker consumer environment that’s seeing food retailers steal market share, the retailer’s commitment to licensing and its willingness to take risks make it an attractive partner for licensors and licensees alike. “It’s a licensing-literate retailer and very keen to be at the forefront of licensing trends,” says Austin. “It’s not like a Walmart that waits a season to see what’s working and then jumps. It will give you a shot, and so it is an incredibly valuable retailer for manufacturers launching new licenses in the UK.”