Our strategy

The Group's retailing formats are well positioned and clearly differentiated from other retailers in the market and continued investment in store presentation remains a key focus. In the main, Argos and Homebase appeal to different types of customer. In Argos, the focus is on choice, value and convenience, while Homebase has a more service-led proposition.

What this means:

• Stores represent an integral part of the Argos model as places to shop as well as providing convenient 'pick up points' for the customer. We plan to open a net five stores this financial year and the programme to refurbish existing Argos stores is performing ahead of plan.
• Homebase continues to roll out its 'refresh' programme, significantly improving its big ticket offer as well as enhancing its home and decorative offerings. We pan to invest in circa 10 refreshes over the next year.

We use the strength of our retail brands to drive leadership in our core markets and grow market share through expanding our product ranges. With over 60,000 products across Argos and Homebase, we are always looking for opportunities to offer new products and services.

During the last financial year, Argos held or gained market share in most of its product categories and it continues to develop ways to further expand choice, reviewing category opportunities which can leverage its highly flexible operating model and online presence.

Homebase offers 38,000 products to support the home and garden enhancer using inspirational roomsets and an installation service to extend its presence into big ticket items. Homebase's differentiated proposition continues to drive market share gains.

Some examples:

• Argos is trialling a new route, provided by third parties but embedded into the Argos web shopping experience, which both extends and introduces new ranges. One example is a new books category, where Argos is building towards a choice of around 5,000 titles.
• We've moved into new product markets, such as the recent launch of over 2,500 children's and adults' clothing options in Argos.
• Recognising that decorating projects continue to drive footfall to Homebase, planned range reviews will continue to increase the emphasis on affordably stylish decorating projects, such as the enhanced flooring and tiling offer which was introduced in about 100 stores last year.
• Homebase's award-winning kitchen installation service has been expanded to include bedrooms and bathrooms

In these challenging times, value is becoming even more important to customers than ever before. We maintain our competitive price position using our purchasing scale and capabilities in all areas of sourcing to create a highly-advantaged supply base, particularly for direct import and direct sourcing of product.

Argos is a leading value retailer with a low-cost operating model and remains highly price competitive. Homebase and Argos benefit jointly from the Group's sourcing scale and infrastructure and, wherever possible, pass these savings on to the customer.

What this means:

• Argos has maintained its commitment to being highly price competitive through the use of weekly price comparisons and is able to offer even greater value to customers through Argos Value range and 'WOW' deals. Over 10,000 prices have been frozen or reduced for the Autumn/Winter 2011 range.
• Homebase continues to improve its value position, through its Value range, best buys, bulk deals and other promotional offers. Actions taken over the last two years have resulted in a significant improvement in the customer's perception of value at Homebase.

Our scale and infrastructure give us strategic advantage as they enable us to leverage financial benefits and synergies that would be difficult to replicate, given the investment required and the period of time over which these scale advantages have been established.

We also provide an in-house financial services operation, called Financial Services, which provides customers with a range of both revolving and promotional credit products to help them buy the products they want from us, as well as a home delivery service which supports the multi-channel proposition at both Argos and Homebase.

What this means:

• Our Group sourcing operations import products which account for more than a third of our sales. This provides benefits to both Homebase and Argos and across all major product groups.
• Despite a declining market, during the last financial year we maintained our overall market share and retain market leadership positions in each of our key product markets.

Over the past two financial years we have successfully delivered a number of significant organisational and infrastructure changes that have reduced costs by £125m and improved the flexibility of our business for the future. This cost reduction has been achieved through a rationalisation of the distribution network, store-based management restructuring programmes, central office operating efficiencies and numerous other cost efficiency initiatives.

What this means:

Within the last two years we have:

• Reviewed and enhanced the structure of our central support teams, resulting in lower costs
• Enhanced the structure and scheduling of our store staffing to provide better customer service and achieve further cost reductions
• Consolidated our distribution centre network to provide a higher service level from fewer centres, again saving money

The Group has strong cash flow characteristics, which have resulted in net cash generation of £614m from demerger until 2010. We returned £150m to our shareholders during the 2010/11 financial year via a share buy-back programme, resulting in a year-end net cash position of £259m.

The Group's strong financial position continues to support investment for growth and we plan to continue investing in our retail formats, developing the multi-channel retail offer and opening new stores.

What this means:

• We can finance the continued refurbishment of Argos stores, with plans for 200 refurbishments during 2011/12
• We can support plans for the opening of a net five Argos stores in 2011/12, providing greater flexibility for customers looking for a convenient pick-up point
• We can continue our refresh programme in Homebase, delivering a broader home enhancement offer and improving store standards
• We can continue to invest in the multi-channel initiatives which make us the UK's leading home and general merchandise retailer

We continue to invest ahead of the recovery in consumer demand and so remain confident in our ability to deliver growth in shareholder value over the long term.