Electronics sales slump hits Argos owner as consumers tighten belts

SHARES in Home Retail Group hit a two-and-a-half-year low yesterday after the owner of Argos and Homebase revealed cash-strapped consumers were spending less on electronic gadgets and other big-ticket items.

Like-for-like sales at Argos dived by 9.6 per cent in the 13 weeks to 28 May, with total sales - which include newly-opened stores - falling by 8.1 per cent to 817 million.

The gloomy first-quarter figures are the latest in a string of down-beat updates from the retailer, which has felt the brunt of low consumer confidence.

Chief executive Terry Duddy, right, said: "Trading conditions, particularly at Argos, have proved to be more difficult and volatile than anticipated. It is clear that consumers are continuing to tighten their belts for big-ticket purchases. This is really a big-ticket and consumer electronics issue."

Homebase offered a slim glimmer of sunshine, with like-for-like sales up 1.6 per cent after garden-related products - including furniture, plants and exterior paints - sold well during April's hot weather and the plethora of bank holidays.

Argos also said the fall in demand for consumer electronics goods had been partially off-set by strong sales of toys and seasonal goods such as garden furniture and barbecues.

But stock clearance and higher shipping costs squeezed margins at the catalogue business, which recently posted an 18 per cent decline in operating profits to 219m for the year to 28 February.

Duddy said the chain had held its share of the consumer electronics market, which overall is down about 20 per cent year-on-year.

Finance director Richard Ashton added that 30 per cent of Argos's first-quarter sales were in consumer electronics, with the category accounting for 75 per cent of the reduction in sales.

He admitted to particularly weak sales of TVs and video games and said the firm now expected a mid-single-digit decline in Argos's like-for-like sales over the full 2011-12 year.

Duddy agreed he was cautious for the balance of the year as retail markets were hard to read.

Consumers' purchasing power is being squeezed by high and rising inflation, muted wage growth, high unemployment, elevated debt levels, the UK government's fiscal squeeze and the fear of interest rate rises.

On Tuesday, a survey showed UK retail sales fell unexpectedly in May as consumers reined in spending after a strong Easter.

Home Retail Group has been particularly hard hit as its predominantly low-income customers are suffering the biggest squeeze on their budgets.

Although the Bank of England kept interest rates at a record low of 0.5 per cent yesterday most economists expect a rise before the end of the year.Some retail analysts fear rate rises could trigger a rapid deterioration in retail spending as the proportion of mortgage holders on fixed rates has fallen 40 per cent since 2007.

In April, Home Retail Group announced plans to expand into TV shopping, books and childrenswear. It said it would continue to invest to prepare for an eventual consumer recovery.

Argos has refurbished stores and extended its "click and reserve" collection service to users of its iPhone app.

Freddie George, an analyst at stockbroker Seymour Pierce, said the decline in Argos same-store sales was much bigger than his forecast for a 4 per cent fall.

He said: "Argos remains under pressure from a weak consumer environment."