Sainsbury’s revealed today that it is interested in buying Argos and Homebase-owner Home Retail. The announcement comes after an approach by Sainsbury’s was turned down in November 2015. Richard Perks, Director of Retail Research at Mintel, explores the potential reasoning behind the deal…

Regular readers of Mintel’s European retail news will know that we are usually sceptical about this sort of ‘big deal’. And this is no exception. One can see the logic behind the argument that Argos concessions in Sainsbury’s are working well, and looking forward they could be a useful traffic generator if superstores continue to see market share drift downwards. Sainsbury’s is not alone in trying to come up with solutions for its superstores, and it is encouraging to see the company trying new ideas.

But there is more to Argos than just concessions in Sainsbury’s, and we have reservations about its retail format. Argos has the advantage of visibility that a national network of outlets brings, but none of the other advantages that come with operating stores – especially product display and opportunities for good service. Nor has its performance been very good – sales fell last year in spite of opening 86 new concessions.

It seems to us that if Sainsbury’s wants the footfall benefits of Argos concessions, it would do best to keep the relationship at arm’s length – where it currently stands.

Conspicuously absent from the announcement is any mention of Homebase. Afterall, Sainsbury’s set up Homebase, built it up and then sold it off in 2000 – the low point in the Supermarket’s recent fortunes. It would, presumably, be sold on if Sainsbury’s did buy Home Retail. There were rumours recently that Leroy Merlin might be interested, and we think that such a link up could work well.

Richard Perks is Director of Retail Research at Mintel where he advises clients, writes retail reports and presents webinars. Richard joined Mintel in 1999 and previously headed the Retail team, overseeing the content and strategy of the retail reports. He regularly provides analysis to the global media on retail issues. Before joining Mintel, Richard worked as a City analyst and as a journalist.