View from City Road: Argos proves worth of low-price formula

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The Independent Online
Argos, the retail outlet where you order goods from a catalogue and wait for them to come up from the bowels of the store, isn't interested in trumpeting its low- prices strategy from the rooftops as some other retailers have been forced to do. It prefers to focus its energy on delivering them.

Three-quarters of its winter catalogue was offered at the same, or lower, prices than the previous one, resulting in price inflation of just 1 per cent in its stores last year. The cost was a fall in second-half margins and the prospect of further erosion to come.

Argos is not alone in suffering gross margin pressure. What sets it apart from many of its high street rivals is that the sacrifice on mark- up is bringing benefits in the shape of higher sales volume.

This rose 8.3 per cent in the second half, giving a 7.3 per cent like- for-like gain for the year as a whole.

That, together with tight cost control and shrewd management of its sales mix, meant operating margins improved, rather than fell. On this score, this makes Argos - like Marks and Spencer and, possibly, Next - one of the few retailers to have actually worked out a successful formula for the 1990s.

What matters is not just price. More important is knowing what your customers want and establishing the most efficient way of satisfying them.

Argos' ability to do that is demonstrated by the fact that it has more well-heeled shoppers than virtually any chain store. Yet it has managed to attract them without alienating the less well-off. Others, like Kingfisher, which are still at the trumpeting stage, can only look on in envy.