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Argos pins hopes on shopping channel

Argos owner Home Retail Group says low-budget production will help slow sales drop

With special guests culled from reality TV shows such as Dancing on Ice and The X Factor, Argos TV is unlikely to be the critics’ choice.

It is a low-budget production, with the entire set built from the Argos catalogue, and the script leaves a lot to be desired too; ranging from a gushfest with Coleen Rooney over her “Chanel-inspired” jewellery range for the retailer to a breathless monologue from a presenter on the “multi-cyclonic technology” behind the latest Vax vacuum cleaner.

This is the weird and wonderful world of TV home shopping, a lucrative backwater worth an estimated £1.4bn where today’s big fish include US giant QVC and homegrown channel Ideal World.

Broadcast on Sky channel 642, Argos’s new offering, filmed in an unprepossessing industrial estate in north London, can be found by viewers surfing through the shopping channels. Given the retailer’s recent performance, investors might classify it as a horror show. At the last count like-for-like sales were down 8.6%, a disastrous slump that Terry Duddy, chief executive of Argos owner Home Retail said had prompted a strategic review as directors tried to figure out “what the hell is happening”.

Sales of some of its top product categories, including TVs and computer gaming, are in freefall – down 20% – as consumers batten down the hatches. Duddy, who has been handling the day-to-day running since the departure of long-serving boss Sara Weller in June, blames its continuing poor performance on the enduring impact of the recession on working-class families. “They are having an extremely tough time,” he said, adding that rising food and fuel bills meant that now they had even “run out of rainy-day money”.

Argos’s shopper base is drawn from the core mass-market in the C2 and D socio-economic groups, who Duddy says have not benefited as much from big falls in mortgage rates as those with higher incomes.

That explanation, however, has started to wear thin with analysts, who have pencilled in profits of £150m for this year – down from £376m in 2007 – from sales of more than £4bn. They argue that like HMV it is being undermined by structural changes in its market as the leading supermarkets and the internet change the way Britain shops. It might be the biggest seller of TVs and toys in the country, but it is vulnerable, analysts believe. Shares in Home Retail, which also owns Homebase, are down 45% in the last year and investors are looking to Duddy for some answers – or better still action such as store closures or a rethink of the catalogue.

The potential of the TV channel is clear for a well-known brand like Argos, with QVC’s UK arm reporting annual sales of nearly £400m last year. Argos said it was “absolutely seeing an effect” on sales on the back of the channel, but the picture was complex as shoppers often placed their orders via its website rather than phoning in. Argos is employing a legion of homeworkers to answer calls around the clock.

Argos broadcast controller Paul Tremain said products with lots of features to demonstrate, such as flatscreen TVs, were typically the biggest sellers. “You want something with a wow factor so someone sits back and thinks, wow, I didn’t know I needed that.”

After a summer of soul-searching, Duddy said he had decided that the firm’s strategy was right. “We know that isn’t necessarily what everybody wants to hear, because at this level of performance people are expecting a sort of transformation.”

Store closures were not on the table, he said. He was backed by finance director Matthew Smith, who said that with an average of seven years to run on its leases, even if Argos did have lots of loss-making stores, it could not leave them.

With a third of Argos’s sales booked online and increasingly with mobile phones, Duddy said its multi-channel proposition, which marries a national catalogue-based store network and the internet, was a winner, despite its moribund performance. He claimed that based on market share data for the last two years the retailer had not lost ground. “Every business faces structural challenges,” he said, adding that its competitors had changed to the supermarket and internet but it was also benefiting from the demise of smaller specialists. “The thing that we’ve got to do is not just be great in the markets that we’re in, but get into new markets,” he said, pointing to the opportunity presented by its purchase of the Habitat brand in the summer.

But with a tough Christmas trading period ahead, Duddy is less upbeat than the presenters on his channel and was bleak as he assessed the retail landscape. “I’m not one of those people who thinks 2012 might be the point of optimism with the [Queen's diamond] jubilee and the Olympics . All I can say at this time is… I do not know when it’s going to get better.”

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