Sainsbury’s set to re-bid for Argos

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.