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Argos Retail Group
2
Argos Retail Group
• ARG model
• Argos Direct model
• Scale advantage
• Future opportunities
3
ARG - integrated business model
• Multi-brand, multi-channel
• Separate customer facing brands
• Leveraging capability
– Sourcing and supplier management
– Customer services (multi-channel, home delivery and contact centres)
– Financial services
– Shared services (property, finance, HR, IT)
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ARG - multi-brand, multi-channel model
ITFinancePropertyFinancial services
Contact centres
Home delivery
Shared services
InternetPhone Store
Customers order via
HomeStore
Products delivered to
HomebaseArgos
Shared sourcing
5
Argos Direct - business model
• Product markets
• Customer proposition
• Competitive advantages
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Attractive markets
• Large markets
• Fast growing markets
• Fragmented markets
• Requires national home delivery service
• Big ticket market currently challenging
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Argos - significant shares
• Furniture (market size £12bn)
– Market leader in
• Beds
• Home office
• Occasional furniture
• White goods (market size £3.7bn)
– Argos has built significant share (rated 3rd) and growing
Source: GFK Consumer Panel / Mintel GFK Lektrack
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Argos - growing share
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004
Furniture/Leisure/Brown goods Stocked-in White goods
Argos DirectIndexed sales
2000 =
100
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Argos Direct - customer proposition
• Choice
• Value
• Convenience
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Choice
Delivery only - product lines
2,406
2,8643,115
3,685
AW2002 AW2003 AW2004 AW2005
• Product choice not constrained by store size
• Improved ranging twice a year
• Not committed to stock for store display
• Catalogue offers customer-friendly method of accessing huge range
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Value
• Market beating deals -“WOW” offers
• Promotional offers
• 16 day money back guarantee
• Direct sourcing and supply chain
• Credit - easy ways to pay
• Great value for new looks
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Convenience
• Multi-channel proposition
• Delivery within 48 hours for small products and on average 14 days for larger products
• Market-leading home delivery service – am/pm and Saturday
• All products available for delivery to home
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Competitive advantages
• Large scale national operation
• Sourcing scale
• Cost efficiency
• Attractive economic model
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Argos Direct
203
278
419
554
672630
22%20%
18%
16%
12%10%
2000 2001 2002 2003 2004 9m toDec 04
Argos DirectSales (£m) and share of Argos sales
Year to March
15
Argos Direct
By phone26%
In store50%
By Internet
24%
Method of ordering
Delivery-only(two man)
76%
Stocked-in(one man)
24%
One-man vs two-man delivery
9 months to December 2004
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Argos Direct
• Large scale national operation– Makes over 6m deliveries to customers each year– Delivers to 1 in 7 UK homes and 1 in 5 Argos
customers
• £100m in four years invested in infrastructure
• Efficient operation– First time success on delivery is >97%– 88% of customers say they are satisfied with the
service– 89% of customers say they are likely to re-use the
service as a result
• Critical mass/scale provides competitive advantage
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Two-man delivery infrastructure
1997 Acton Gate opened395k sq ft66,000 units capacity
2003 Marsh Leys opened600k sq ft95,000 units capacity
2005 Darlington to open June 2005670k sq ft105,000 units capacity
Darlington
Acton Gate
Marsh Leys
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Cost advantages
• Low cost order taking and customer service
– Stores take 50% of orders
• Vehicle fill and drop density
– Efficient vehicle utilisation
• Reduced delivery distances
– More DCs
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Leveraging the infrastructure
• Homebase volume
• National delivery service
• Argos Direct provides over 40% cost saving versus third party carrier
• Argos Direct has proven capabilities
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• Customers pay 100% in advance of delivery
• Delivery within 14 days
• Stock turn over 25 times
• Average creditor payment is 45 days
Working capital efficiencies
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Future opportunities
• Improving Argos Direct proposition
– More choice
– Enhancing delivery options
• Leverage infrastructure for Homebase
– Furniture Direct
– Homebase website
– Homebase appliance catalogue trial
– Garden furniture
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Homebase - growth
• Wider furniture range, great prices, free and fast delivery
• 52 pages
• 770 options
• On website
• Currently in 19 stores
• Leverage Argos product pool and infrastructure
Furniture Direct
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Homebase - growth
• Launched in February 2005
• 4,000 Internet exclusive lines (Argos product and infrastructure)
• 4,000 Homebase lines (non-transactional) to be added in April
• Leveraging Argos web technologies
• Leveraging product pool and infrastructure
Homebase website
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Homebase - growth
• Trialling Homebase appliance catalogue from Easter
– 52 pages of Argos products
– On website
– In 20 stores
• Leveraging Argos product pool and infrastructure
White goods
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Summary
• Argos Direct continues to drive growth in Argos
• Large market opportunity
• Multi-brand approach
• Leveraging single infrastructure
• Scale and economic model providing competitive advantage
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Marsh Leys - key facts
• 38 acre site
• 656k sq ft warehouse
• 96 loading docks
• 175 lorry parking spaces
• Employs 410 over 3 shifts
• Dispatch c£300m of sales in last 12 months
• Equivalent to 1.9m units
• Dispatch 140,000 components per week (equal to 1,156 delivery vehicles per week)
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Cost advantages
• Two-man home delivery economics focus on transport costs
Example Total logistics costs% warehouse % transport
costs costsTraditional store delivery model 60 40Home delivery model 35 65
• Volume and network planning are the keys to delivery efficiency
– More drop density• Increases vehicle fill• Reduces delivery distances
– Starting close to the customer• Reduces delivery distances
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Argos Direct - two-man delivery 2001
Key operational statistics
2001
Deliveries (m) 1.62
Sites 1
Outbases mainland 16
Drops per vehicle 30
Trunking distanceper drop, miles c. 6
Delivery distanceper drop, miles c. 6