Our product markets

Home Retail Group operates in the home and general merchandise market, worth approximately £60 billion in terms of UK retail sales.

We are the market leader in this market, with an approximate 10% share. The overall market can be analysed into various product categories. A summary of these, including where products are sold at Argos, Homebase or both, the Group’s overall share position and the market size of each product category, is as follows:

Product Markets

	Argos	Homebase	Group position	Market size (£bn)
Home enhancement
Housewares			1	9.2
Furniture			1	8.1
Home improvement (DIY/fitted kitchens/bathrooms)			2	11.2
Horticulture, garden furniture and outdoor living			2	3.0
Sub total				31.5
General merchandise
Small domestic appliances			1	1.4
Consumer electronics			2	16.4
Large domestic appliances			3	3.6
Toys			1	1.8
Jewellery			1	3.4
Sports and leisure equipment			1	1.4
Sub total				28.0
Total				59.5

Housewares

The housewares market is relatively fragmented, according to analysis by Verdict Research, with the ten largest retailers accounting for around 40% of the market. Argos is market leader, with Homebase adding further Group scale. The competition base is very broad across the department stores (John Lewis, Marks & Spencer, Debenhams and Bhs, as well as fashion and home retailer Next), some national specialists (IKEA, Dunelm), the supermarkets (Tesco, Asda, Sainsbury) and some broader generalists (Wilkinson, Matalan, TK Maxx). Specialist independents are estimated to account for around one-third of the market.

The housewares market in calendar year 2008 was estimated to have experienced broadly flat total retail sales.

Furniture

The structure of the furniture market shows fairly close resemblance to the housewares market according to analysis by Verdict Research, with the ten largest retailers accounting for approaching 40% of the market. Argos is market leader, with Homebase again adding further Group scale. The competition base has a greater proportion of national specialists (DFS, IKEA, the former MFI business, Homestyle Group, Magnet, ScS, Land of Leather, Furniture Village), with other significant players being B&Q, John Lewis and Next.

The furniture market in calendar year 2008 was estimated to have experienced a mid-to-high single-digit decline in total retail sales, with capacity withdrawal also noticeable.

Home improvement

The largest part of the home improvement market is the DIY category (excluding furniture and homewares). There are four national specialists (B&Q, Homebase, Wickes and Focus) accounting for over 40% of the market according to Verdict Research, with other national operators selling products in this category being Argos, Wilkinson, Robert Dyas, Topps and Wyevale. Approximately 50% of the DIY market is estimated to be accounted for by specialist independents. The home improvement market also includes the kitchens, bathrooms and floorcoverings (excluding carpets) categories, with additional national competitors in these areas including Magnet, Howden, the former MFI business and HomeForm.

The home improvement market in calendar year 2008 was estimated to have experienced a mid single-digit decline in total retail sales.

Horticulture, garden furniture and outdoor living

This market according to Verdict Research, is mainly dominated by the four national DIY specialists, with Argos and the two garden centre specialists Wyevale and Dobbies also being significant retailers of products in this category. Approximately 50% of this market is also estimated to be accounted for by specialist independents.

The horticulture, garden furniture and outdoor living market in calendar year 2008 was estimated to have experienced a mid single-digit decline in total retail sales.

Small domestic appliances

This market is relatively concentrated according to GfK, with Argos being the clear market leader with a substantial market share. Competition is mainly in the form of the electrical specialists (Currys and Comet), Boots in terms of personal care appliances, the supermarkets, and the department stores. Approximately one-third of the small domestic appliances market would be accounted for by specialist independents.

The small domestic appliances market in calendar year 2008 was estimated to have experienced a marginal decline in total retail sales, according to Verdict Research.

Consumer electronics

This market is also relatively concentrated, according to GfK, with Currys being the market leader, followed by Argos and then Comet. Other competition is mainly in the form of John Lewis and other department stores, the supermarkets, and national specialists in certain sub-categories such as Game in video gaming and Jessops in photography. Around one-quarter of the consumer electronics market would be accounted for by specialist independents, while other online retailers re-present a small but growing share of this market.

The consumer electronics market in calendar year 2008 was estimated to have experienced a mid-to-high single-digit growth in total retail sales, according to Verdict Research. This was almost entirely driven by the video gaming category, with marginal growth or decline in the other major areas of consumer electronics.

Large domestic appliances

This market is again relatively concentrated, according to GfK, with the two major electrical specialists being then followed by Argos. Department stores such as John Lewis, DIY and kitchen specialists (including Homebase), and to a lesser extent the supermarkets and home shopping businesses, represent other significant retailers in this category. Approximately one-third of the large domestic appliances market would be accounted for by specialist independents.

The large domestic appliances market in calendar year 2008 was estimated to have experienced a high single-digit decline in total retail sales, according to Verdict Research.

Toys

The toy market is relatively concentrated, according to analysis by NPD, with the ten largest retailers accounting for over 60% of the market. Argos is the market leader, with Toys ‘R’ Us and the former Woolworths business the two major national specialists. The Early Learning Centre, Toymaster, The Entertainer and the Disney Store are other significant specialists, with the supermarkets also being significant toy retailers.

The toy market in calendar year 2008 was estimated to have experienced a mid single-digit decline in total retail sales.

Jewellery

Market competitor analysis on the jewellery market is based on volume sold rather than total retail sales value. This indicates a highly concentrated market, according to Mintel, with Argos being the market leader by volume, followed by H. Samuel. Other major retailers of jewellery volumes include Next and other fashion jewellery shops, Marks & Spencer and other department stores, and specialist jewellers selling a greater proportion of precious metal jewellery such as Ernest Jones/Leslie Davis and Goldsmiths.

The jewellery market in calendar year 2008 was forecasted to have marginal growth in total retail sales value terms, according to Mintel.

Sports and leisure equipment

This market is relatively fragmented according to analysis by Verdict Research, with Argos being the market leader. Other sellers of equipment include the predominantly sports clothing retailers (Sports World International, JJB Sports, John David Group), the department stores, and retailers such as Halfords in sub-categories such as cycles and camping. The majority of the market is estimated to be made up of specialist independents.

The sports and leisure equipment market in calendar year 2008 was estimated to have experienced a mid single-digit growth in total retail sales.

Expected future development of the competitive landscape

We expect our product markets to remain highly competitive in the future. Supermarkets have been growing share in certain parts of the nonfood, non-clothing market, building on their regular footfall and the increased space given to these ranges. Online retailers, such as amazon.co.uk, currently represent a small but growing share of certain product categories. However, in categories undergoing a sharper slowdown in consumer spending, many specialist retailers, often with some significant market shares, are experiencing financial difficulties. In most categories, the independent specialists will face even greater pressures on the ability to weather the challenging economic environment.

Although retail conditions are likely to remain tough in the near term, the longer-term outlook for market growth remains positive. A return to long-term growth in the general merchandise and home enhancement markets would be expected on account of population growth and an increasing number of households, a reversion to the general trend of rising overall household disposable income, technology changes and other new product developments, as well as the need to replace many existing household items.

Home Retail Group’s key strengths mean we are well equipped for the future. Our strong retail brands, multi-channel offering, extensive product choice and competitive pricing, together with a strong financial position, mean we are relatively well placed to trade through the downturn and benefit from renewed consumer confidence later in the cycle. While we have leading positions in multiple product markets, there remains substantial headroom for growth in many categories. The more fragmented markets provide growth opportunities, and we expect to take market share from weaker competitors and to benefit from any capacity withdrawal that ensues.

Our businesses are well established but continue to evolve to meet changing customer preferences. Our product range is constantly expanding. Our supply chain is highly efficient and cost effective. With all the key determinants for success in place, we expect to emerge in the long run as a stronger competitor in a more consolidated market.