Sainsbury's has pointed to intense online competition and fragile consumer spending as key reasons behind a disappointing festive sales performance at its Argos chain, fuelling speculation about the catalogue retailer's future within the group.
Supermarket Strength Versus General Merchandise Weakness
The UK's second-largest supermarket group revealed a stark contrast in fortunes across its divisions for the three months to 3 January. While like-for-like sales at its core supermarkets grew by a solid 3.4%, total sales at Argos fell by 1%.
The divergence was even more pronounced during the vital final six weeks of the quarter. Sainsbury's supermarket sales surged 4.6%, but Argos suffered a 2.2% decline in total sales. The company noted it sold more items at Argos, but average prices were dragged down by subdued spending on big-ticket categories like furniture, heavy promotions, and a weak gaming market.
The 'Significant Headwinds' Facing Argos
Simon Roberts, the group's Chief Executive, stated the business faced "significant headwinds" during the period. These were identified as challenging online traffic trends, a tough and highly promotional general merchandise market, and persistently weak consumer confidence.
The rise of ultra-low-cost online marketplaces such as Temu and Shein is understood to have intensified competitive pressure on traditional retailers like Argos over the Christmas season. This shift in consumer behaviour towards digital discounters created a difficult trading environment.
Future in Question as Supermarket Core Holds Firm
The sustained poor performance at Argos, which operates over 800 stores, is likely to increase conjecture that Sainsbury's may seek to offload the business. This speculation was further ignited by a reported approach from Chinese retail giant JD.com in the autumn.
Despite the Argos struggle, Roberts emphasised that the robust supermarket performance means the group remains on track to meet its profit expectations. Sainsbury's anticipates delivering a retail underlying operating profit of more than £1 billion and plans to return over £800 million to shareholders this year, including a £250 million special dividend.
"We have made balanced choices to invest and sustain the strength of our competitive position through the most important trading period of the year," Roberts said. He highlighted strong grocery momentum and market share gains, driven by investments in value, quality, and service.
In other areas, Sainsbury's reported a 14% jump in online grocery sales, boosted by demand for rapid delivery. However, its clothing sales were dampened by softer demand and unseasonably mild weather, echoing concerns seen across the high street fashion sector.
The update follows similar Christmas trading statements from rivals. Marks & Spencer reported falling clothing sales, while market leader Tesco celebrated its best market share in over a decade on the back of strong fresh food and premium own-label sales.
