ARG comprises principally Argos and Homebase, two of the strongest brand names in UK retailing. With the disposal of its home shopping and logistics businesses in May 2003, ARG has been able to focus principally on the sale of general merchandise. In addition, it provides customers with a range of financial products through ARG Financial Services and owns the leading home shopping retailer in Holland, Wehkamp.

During recent years, ARG has invested strongly in developing its multi-brand, multi-channel offer, supported where appropriate by a central infrastructure. The emphasis is on continuous improvement in product range, availability and price, while offering customers multiple ways to order products, convenient methods of payment and home delivery options.

In the year under review, ARG’s sales increased by 10% and its profits by 19% on a pro forma basis. Capital investment totalled £160m and will increase to about £250m in the current year.

Argos

Argos has continued to outperform its market by offering customers the most compelling combination of choice, value and convenience. Sales were up 12% and profits up 24%.

The latest Spring/Summer catalogue, which was launched in January 2004, contains 13,000 lines, which is 12% more than a year ago. Lines that were re-included from last year had prices averaging 3% lower.

The Argos Extra catalogue, which has 30% more lines than the main catalogue, has been successfully trialled in a number of larger Argos stores and will be in about 150 stores by July 2004. Argos Extra increases consumer choice with new and extended product ranges in leisure, home and electricals.

The number of Argos stores was increased by 33 during the year and a similar number will be opened in the current year. The store refurbishment programme has also been largely completed. Quick pay kiosks, which reduce the time it takes for customers to purchase goods, were in 230 stores by the year-end and are being rolled out further.

Argos continued to invest strongly in its supply chain, with the opening of a 60,000 square metre central distribution centre in Barton and a similarly sized warehousing facility for Argos Direct, the delivery to home operation.

Argos customers are increasingly appreciating the flexibility of being able to order or reserve products by telephone, text messaging or over the Internet and to have products delivered direct to their home or office. Argos Direct accounted for 20% of sales during the year, up 21% on the previous year, while Internet orders increased by over 50%.

For the second year running, Argos was named Multi-Channel Retailer of the Year by Retail Week at the UK retail industry awards. Argos was also ranked the number one European online retailer in a survey conducted by Forrester Research.

Homebase

Homebase has made good progress since its acquisition in December 2002 and is now being successfully positioned as the UK’s leading home enhancement retailer.

The priority during the last year has been to create a successful platform for growth. Key initiatives have been to improve the in-store experience and increase the sales of high-value items such as bathrooms and kitchens. This has included new ranges, improved stock availability and enhanced customer service.

Together these have contributed to a 5% increase in sales during the 12 months to 28 February 2004 (Homebase’s year-end). Profit was at a similar level to last year, reflecting significant investment in positioning Homebase for growth.

A key investment was to accelerate the roll out of mezzanine floors, bringing the total to 67 out of the 278 Homebase stores. These floors provide an attractive return on investment and are being used to showcase bathrooms, kitchens and furniture without reducing space for Homebase’s core DIY products. A further 35 new mezzanines are planned for the current year, together with 10 new stores.

A new furnishings range called miHome was launched in September to provide affordable fashion for the home. miHome has been well received by customers in the 10 trial stores and elements will be extended across the Homebase chain in time for Easter 2005.

Supporting these initiatives has been a major culture change programme involving all 17,000 Homebase staff. It is designed to help Homebase to deliver a consistently excellent customer experience with the goal of ‘making it easy for our customers to create a better home’.

ARG Financial Services

ARG Financial Services works closely with Argos and Homebase to provide their customers with credit facilities to help drive product sales. In doing so, it is building a customer base for a range of financial products, including personal loans, cards and insurance.

The total amount on loan to customers almost doubled during the year. This was helped by the launch of the new Homebase store card and personal loan products, which already account for 10% of lending, and by the continuing success of the Argos store card, which now finances 9% of Argos sales.

Wehkamp

Wehkamp is the main home shopping brand in Holland and the leading Internet retailer. It has a multi-channel model, with a third of its merchandise sales coming from the website.

The challenging Dutch economy and increased competition resulted in Wehkamp’s sales being 3% lower in euros. However, tight control of operating costs and a move towards higher margin fashions brought an improved operating margin.