Consumer squeeze hits Argos sales

Argos suffered a shock fall in sales after conditions on the high street proved "more difficult and volatile" than its parent company Home Retail had expected, as shoppers turned their backs on electronic goods.

Sales at the high street retailer, especially for televisions and video games, slumped almost 10 per cent in the 13 weeks to 28 May to £817m over a year earlier. Market experts said the announcement gave a clear indication that the Government's austerity measures were hitting consumers hard. Shares in the group plunged 14 per cent to 174.5p.

Terry Duddy, the chief executive of Home Retail, said: "For Argos, the consumer electronics market represents a substantial proportion of its sales and has experienced a further significant decline."

He added that the tough market conditions, alongside the volatility of sales, "has made the balance of the year more difficult to predict". Analysts at Killik said the sales at Argos since the beginning of the year had been "much worse than expected" following the slump in consumer electronics.

The only bright spot for the retailer was the sales of laptops, which continued to grow. Argos accounts for almost two-thirds of Home Retail's turnover. Nick Bubb, an analyst at Arden Partners who had predicted that sales would drop, said last week that the company had "big structural problems".

The Argos figures come just weeks after rival Kingfisher warned that the rest of the year could prove tough for UK retailers.

Home Retail's performance was also partly salvaged by the warm weather over Easter as customers rushed to stock up on garden furniture and barbeques. The management is expected to come under further pressure in the second quarter, which faces tough comparisons a year on from the football World Cup in South Africa.

Another Home Retail chain, Homebase, also saw disappointing sales – although not to the same extent as Argos – which fell 1.6 per cent. While it also benefited from demand for garden furniture over the past weeks, sales of big ticket items suffered.

Richard Curr, at Prime Markets, said Home Retail and Kesa, which owns the Comet chain, have always been an accurate barometer of consumer spending power and sentiment. "It is clear today that the government austerity measures and general uncertainty has hit the consumer hard, as borne out by the 8 per cent fall in in total sales at Argos," he said, although he added Homebase's performance was "considerably better".

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