Having had a £1 billion offer rejected, Sainsbury’s announced they’re coming back for another try today, with a 22 page manifesto setting out for share holders why they’re convinced that it’s a good deal for all parties. Argos was looking weak before Christmas, but that doesn’t mean the business can’t be turned around.
Sainsbury’s have an interesting history with Argos, they used to own Homebase until they sold it in 2002 and is now part of the Home Retail Group alongside Argos. They’re also pretty convinced that there are synergies between the two companies as they’ve had Argos concessions in 10 stores for the past 18 months. If the deal goes through it’s highly likely that Homebase will be flipped and sold once again.
Another attraction of Argos for Sainsbury’s is the Argos store card – Sainsbury’s operate a bank and Argos with 1.6 million store card customers is one of the biggest schemes in the country. Sainsbury’s would also be keen to site cash machines in Argos stores.
Sainsbury’s say that over two thirds of the UK have shopped in Argos in the past year, over two thirds have shopped in Sainsbury’s and over 40% of the UK have shopped in both stores. Adding Argos inventory to Sainsbury’s, especially considering Argos hub and spoke arrangement of stores, would make over 20,000 products available in any Sainsbury’s stores within a couple of hours.
Both companies have invested in home delivery, Sainsbury’s for food and Argos with 3,000 delivery vans for their 3 hour time slot express service plus a network of vehicles for two-man deliveries of larger items. Sainsbury’s contend that the more a customer shops with Sainsbury’s across multiple categories and channels, the more that they capture of their overall food and grocery spend.
We wouldn’t normally be that interested in a food retailer wanting to purchase a general merchandise retailer, albeit on that’s a large marketplace seller. However eBay have closely allied themselves with Argos for their Click and Collect and drop off fulfilment network. What happens if Sainsbury’s acquire Argos?
Three things could happen, worst case eBay is left looking for a new delivery partner, nothing could change and the eBay Argos relationship could continue, or at best it’s possible that eBay could suddenly negotiate a deal to have click and collect at every Sainsbury’s store in the UK in addition to their Argos network.
We know that eBay signed an exclusive multiyear partnership with Argos so it’s unlikely the relationship will end if an acquisition by Sainsbury’s goes ahead. In all likelihood it will simply strengthen the deal as Sainsbury’s are likely to see millions of eBay customer picking up purchases with their shopping as a pretty attractive proposition.
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Don’t under estimate this acquisition, it is about Sainsbury’s taking the battle to Amazon’s door. Their CEO Mike Coupe has already called for a ‘level playing field’ over taxes since Amazon Pantry has been launched and this is all part of the same battle.
It has been well reported here on Tamebay how Amazon are building their own global delivery network and plans to expand their Prime offering to selected Marketplace sellers without using FBA but if you look at the wider picture this move could make Sainsbury’s major competition for Amazon in the UK.
How? Well consider this, Argos represents a well established bricks & clicks operation here in the UK with thousands of products from top brands and also have the click & collect relationship with eBay.
So couple this capability with Sainsbury’s grocery, home goods and clothing offering, 1,200 physical stores, national fleet of home delivery vans (many of which are parked-up waiting to go to a timed delivery slot), access to thousands of eBay sellers offering even more products and hey presto Sainsburys are overnight offering customers millions of products delivered right to their doors at a timed delivery slot up to 10pm and Amazon have got a real fight on their hands! (Drones or no drones).
eBay Click & Collect will be so yesterday if customers can get timed home delivery of millions of products for as little as £3 (same-day in some instances) and once the eBay agreement is up for renewal it might not be long before there is an ‘Argos Marketplace’ attracting 3rd party sellers of their own to rival Tesco Direct.
Watch this space, it will be a very interesting 2016 if Amazon’s reply is to buy Ocado….