Argos' digital-first approach rivals Amazon, eBay
Argos' chief digital officer, Bertrand Bodson, says the retailer has turned a shop-based business into a digital-first enterprise capable of holding its own against rivals Amazon and eBay. In an interview with diginomica.com, Mr Bodson explained that Argos, which has a billion visits to its website annually, used its physical footprint to create a "hub and spoke" system, which allowed it to cover seven-day delivery to 95% of UK postcodes.

How do you make a four decade old retail catalogue business, which has a footprint of over 700 physical stores, digital? That was the challenge facing Chief Digital Officer Bertrand Bodson when he joined Home Retail Group (HRG) three years ago.

HRG subsidiary Argos is one of the UK’s most well known high street brands. It’s catalogues were reliably found on most coffee tables up and down the country and it’s unique stores are visited by most of the British population every year.

However, with the rise in online shopping and the threat of Silicon Valley giant Amazon, Argos faced one of its greatest challenges.

Bodson, who is an ex-Amazon employee, joined Argos to take this on. He jokes that his friends laughed at him for joining the company, given that just a few years ago Argos was probably the least digital company you could get.

Customers had to flick through physical catalogues, write down what products they wanted to buy on bits of paper with a tiny pen, pay for it in store and then collect it from a long counter at the end of the shop.

Not only that, but Argos’ physical footprint of over 700 physical stores may have been perceived to be a hindrance to a CDO joining the company - no-one needs a store anymore, right?

Wrong. That’s exactly what Bodson has used to his advantage and what makes this story so interesting. He has used Argos’ physical footprint to reimagine the company’s fulfilment and business model, giving customers an unbeatable digital customer experience.

I met with Bodson at one the company’s new digital hubs, based above a store in Victoria, London. The Victoria store is one of Argos’ newly designed stores, which is equipped with iPads, instead of catalogues, and is designed to serve the customer as quickly as possible.

The team working above the store are, however, focused on Argos’ digital development. Bodson said:

We started thinking about our stores not just as stores, but as fulfilment capabilities. And to leverage some of the things that are very unique to us, such as a single view of stock, which very few people in the world have. Most retailers know where their stock is, but at pallet level, which makes it very difficult to do click and collect. Some items also move super fast, some move slowly, but you need to have them to serve customers so that they have the full choice. Having every single bit of stock item at a point in time is really valuable to us. Three or four years ago, my friends gave me a bit of a tough time - asked, why are you joining Argos? I found it fascinating because of the team they were putting it together and because there was a real appetite to make it a real digital play. It had that single view of stock, it had stores that could be leveraged. How can we get more choice available, faster for customers? How can we have 20,000 items available, right away, wherever you want to be, close to where you are, nationwide. We have pushed the boundaries on that quite drastically.

Hub and Spoke

Bertrand Bodson, Chief Digital Officer HRG

Approximately 65-70% of the British public buys from Argos every year. Bodson said that to make Argos digital, the aim was to make it “universally appealing”. He said that you didn’t do this by making it more luxury, you did it by making it “more of a convenient experience”.

Argos’ board were highly involved with this and £300 million was put up as an investment for the transformation. Bodson said that this was necessary, as he believes that for such a transformation, an “electro shock” is needed.

Bodson was responsible for putting digital teams in place three years ago and got them to focus on the company’s mobile development. To give you an idea of the progress - Argos was the first UK retailer to hit £1 billion of revenue on mobile and was actually ahead of Amazon on this.

It is now the third largest online retailer in the UK, only behind Amazon and eBay. And at peak times it’s online activity is as big as the the top four supermarkets combined. Three years ago Argos didn’t have transaction platforms, it didn’t have apps - it now has more than a billion visits online on a yearly basis and more than 50% of its business is digital, 30% of it mobile.

How was this achieved? And how did Bodson make Argos’ physical footprint work for its digital play? Much of this is centred around a ‘Hub and Spoke’ strategy. Despite what analysts say about physical assets being a hindrance, Argo has actually opened about one hundred more stores since it began its digital transformation.

Bodson explained:

The centre of everything is something we call hub and spoke. Most analysts in the city were asking us if we were going to cut whatever percentage of our estate that was least profitable. We reversed that problem the other way around. We said okay many seem to see stores as a liability in the modern world - but actually there was a recognition that 80 percent of our customers end up in store anyway to pick up their items. And they are a stock room for some of them. So how can we leverage that? So we launched a network of hub and spoke.

What Argos has done is changed the composition of the stores across the UK. So instead of each store acting in isolation, each six or seven stores that are located near each other geographically are treated as a cluster.

Within that cluster, the largest one will work as a hub, whilst the rest will work as the spokes. What this means is that some of the slow moving inventory in the spokes is moved out of the store and into the hub, which acts as a warehouse. More fast moving inventory is then allocated in the spokes, meaning that there is more chance of a customer finding what they need when they get to the store.

Then, if a spoke doesn’t have what a customer needs, it is shipped from the hub on the same day. Argos has hired a fleet of van drivers (3,000 at peak times), which do two or three rotations a day from the hub around all the spokes in each cluster. Bodson said:

If we don’t have it, we ship it from the hub. We do two to three rotations a day from the hub to the spokes with our trucks, so that we can effectively serve you. If you order by 1pm you will get it by 4pm. If you order it by midnight you will get it by first thing in the morning.

This was tested in a few clusters, but has now been rolled out nationwide. Not only this, but the idea has been extended, where Argos is now looking at how it can create smaller ‘spokes’ that allow the customer to be more effectively served. He said:

To open a new store we used to need a store to be 15,000 square feet typically. The problem is that that’s very costly, it costs you a lot of inventory and costs you a lot of space. It’s prime real estate. We did some tests though where we opened some 5,000 square feet, we opened some 2,000 square feet. We started opening 800 square feet in tube stations. We did this to see how we could help customers. And because we had hub and spoke we didn’t need to be fully stocked in anymore, we just did those rotations. That’s where the model becomes really important that we get our customers to start online, where it all fits together.

The results

Argos is now moving 5 million items on a weekly basis across this hub and spoke network. Because of this

physical network and the rethinking about the store fulfilment needs, Argos is also now able to offer same day delivery seven days a week - where if you order before 6pm, you will have it at your door by 10pm

This is what makes the Argos story such an interesting one. Not many digital first retailers can compete with this model. Whilst the likes of Amazon have done a lot to invest in their logistics, with particular focus on quick deliveries in London, Argos was essentially able to cover same day delivery for 95% of postcodes, once this hub and spoke model was in place.

Bodson said that Argos only gets the delivery wrong 1 in 12,000 to 15,000 times, meaning that the model is incredibly accurate. And that customers are very pleased with the result. He said:

There is a trust factor there. We set up standards and a target in terms of customer satisfaction score, which is extremely high. That’s probably one of the things I’m most proud of. The numbers are numbers I’ve never seen before in my career. We wanted to control the experience from beginning to end, which is why we hired our own drivers. We are leveraging a network that already exists, it’s already capitalised, it already acts as a store as well. The economics makes it very attractive in terms of pricing for our customers.

And given Argos’ growth in digital and its imminent takeover by Sainsbury’s, Bodson is pleased with the results. He said:

We had minus 6-8% growth for sixteen quarters before we started this. In a business where you have a lot of fixed costs and estate, that’s not a healthy place to be. It created a sense of we need to do something about this. Three long years of hard work and you do double, triple jobs all the time. It’s a reminder of doing this for a reason.

Challenges

Bodson wasn’t shy to admit that Argos has made mistakes along the way. But he said that to deliver true transformation as a company, you have to break some eggs. He said:

You cannot run it by the quarter and be careful about the market, otherwise you never get things done. That’s my job, to push the boundaries. Very frankly we aren’t always perfectly ready, because sometimes the left hand doesn’t talk to the right hand, and it all goes so quickly. But I prefer by far that than something that takes 10 years.

We still have work to do, which is why I genuinely like telling this story. Because I want to attract talent. On the engineering side, on the supply side, on fulfilment - it’s one of the most exciting puzzles that exists. Three years ago technology was a function and we were a retailer. One of the things I did in the early days was a project called Tech Co - how do we become a technology company? Of course without losing the essence of our customer base, and staying a retailer at the core, but how do we get technologists to think about micro-services? To think agile? To think at that type of speed? I do think changing the culture and process is hard. I do think you’ve got to be a bit mad. It’s hard because the weight of the organisation is against you, especially in public companies. But that’s where I find my fun. Because when it starts moving, you get the weight of the numbers, you get the weight of the brand. If you can start thinking of your assets differently, the price is really there for the taking. But you’re better off starting early, because this stuff takes longer than you think.

My take

But he wants people to know about Argos’ digital journey because he wants people to come and work for the organisation to solve these digital problems. Bodson added:

A fascinating insight into how a retailer that could have been hindered by its physical footprint, used that to its advantage. This is what we talk about when we say digital isn’t just about slapping a website on the front and hoping for the best - it’s about thinking how you can change your business and delivery models to improve the customer experience.

And after my conversation with Bodson, I genuinely believe that Argos has the potential and smarts to take the lead on Amazon in the UK market. How can Argos scale up as quickly on the physical footprint? It will struggle.

Not only this, but it will be very interesting to see how Sainsbury’s uses Argos’ hub and spoke model to serve its customers better once the deal goes through. A very interesting thought indeed.