Why Argos needs to keep the digital faith

Argos has been held up by myself and others as a great case study of a company that has transformed itself into an organisation which is thriving in the multichannel and digital age.

During the summer it became the first UK multichannel retailer to hit £1bn in mobile commerce sales and earlier this month it was the first to offer same-day delivery across the country.

Its installation of digital kiosks, reserve and collect service, in-store tablets and lauded mobile app have seen Argos win plaudits and feature in many PowerPoint presentations at digital marketing and ecommerce events.

So it came as something of a shock this week when I read that its owner Home Retail Group has issued a profit warning, resulting in its shares plummeting and £200m being wiped from its market capitalisation.

The retailer has blamed the costs of an advertising campaign and delivery service set up in time for Black Friday, but more importantly the unpredictability of sales resulting from this November sales phenomenon which has only relatively recently been a feature of the UK marketplace.

The sales warning is a salutary reminder that the shift to a better customer experience and commitment to digital transformation to secure a competitive advantage can be an extremely expensive exercise and doesn’t guarantee immediate financial success.

For those of us who have praised Argos as a business getting things right, it is sobering to read that its investment in digital stores and mobile applications, and move away from old-school pens and catalogues, haven’t translated into trading success at a nationwide level, even though Home Retail Group CEO John Walden insists that digital stores are outperforming their traditional counterparts.

Retail analysts have cruelly suggested that Argos could be heading in the same direction as the likes of Comet and Woolworths (i.e. bust), and the situation also reminds me of the plight of Kodak whose digital reinvention was being lauded as a great case study in the months before its demise showed it to be a ‘digital loser’.

Only time will tell whether Argos overcomes its challenges and succeed in a cut-throat world where consumers want the lowest possible prices and best possible customer experience, but it seems hugely counter-intuitive to think that a business which is walking the digital walk will not reap the commercial advantages in the long-term.

I would suggest that the commitment Argos is showing towards digital and improving the customer experience is a reason to invest in Home Retail Group rather than to sell its shares.

It is refreshing to see a company which is prepared to withstand some short-term financial bumps in order to create a business which will ultimately be creating more value for customers and shareholders.