As Sainsbury’s eyes a merger with Argos, it’s a case of ‘culture inviting strategy round for lunch’ and others should pay attention.
Much has been written about Sainsbury’s proposed £1.3bn buyout of catalogue retailer Argos. The pros and cons, the ins and outs, the synergies, earnings per share and estate valuation. Analysts have pored over every aspect but still haven’t reached a consensus on whether the deal is good or bad for the businesses involved. It certainly has its risks and there will probably be some pain to endure before any benefits from scale and coverage are enjoyed. One thing is for sure though – it’s a bold move that many bricks-and-mortar retailers would do well to take note of.
Sainsbury’s has had a tremendous run. Nine years of uninterrupted sales growth is quite remarkable. All good things must come to an end though and since the start of 2014, the firm has seen like-for-like sales decline for eight consecutive quarters. Faced with price deflation, changing shopper habits and intense competition, the business has drifted into unpleasant and unfamiliar territory. In the last couple of quarters however things have looked a little more positive. The negative numbers are getting smaller (just -0.4% LFL in the last quarter) and the company seems to be simplifying its offer and investing in the things that really matter to its customers. So why take such a big risk and bid for Argos now?
Culture dines out with strategy
There are many strategic arguments to support this acquisition, but as the saying goes ‘culture eats strategy for breakfast’. This quote, attributed to Peter Drucker, obviously doesn’t imply that strategy is irrelevant, but rather that without a strong cultural identity, even the soundest of strategies will struggle to gain traction. That’s why a bid for Argos is so significant. It sends a clear message about how Sainsbury’s wants to be perceived and how it plans to respond to the changing marketplace. There’s no doubt there’s a big cultural dimension here, signalling that the firm’s prepared to be bold, prepared to evolve and prepared to take control of its own destiny, rather than be a hostage to fortune or to what others can throw at it.
Turn words in to action
It’s this attitude, coming as it does in the face of great challenge, which other retailers should be paying attention to. It says “we’re not going to allow the outside world to scare us into inaction”. It says “we have big ideas about what we can become and we’re not afraid to become something different than we have been for the last 100 years”. Many senior executives talk about the toughest trading environment they’ve ever experienced while their sales continue to fall. Many seem to be rearranging the deckchairs while their ships sink. Yes, times are tough for traditional retailers, but the change didn’t start yesterday or last month. It’s been going on for years and we have plenty of evidence to suggest making token gestures and hoping it will all just go away isn’t the best philosophy. In an era of great technological and behavioural change, business leaders have a responsibility to instil the right culture within their organisations.
What does that mean?
It means encouraging teams to take calculated risks. It means compelling them to focus obsessively on their customers, not their own hype or their competitors’ actions. It means giving them the confidence not to fear the future or the consequences of the decisions you’re paying them to make. It’s this kind of culture that’s put Apple, Amazon and Google where they are today. It makes for highly engaged employees, high levels of innovation and what’s more, it’s hard to copy. After all, anyone can cut prices and make a loss.
Strive for agility and dependability
In fairness, companies like Sainsbury’s that are 147 years old aren’t really designed to be agile, fearless and free-thinking. They’re designed to be stable, dependable and durable. They’re not supposed to go chasing after risky new ideas, but to be passed on from generation to generation. Steadily. It’s been several years since I was on the inside of Sainsbury’s and it wasn’t famed for encouraging creativity and risk-taking when I was there, but a tie up with Argos could be a sign that times and the culture have changed and it’s now all about gearing up for tomorrow.
So serious is the competition from online specialists and start-up businesses that cultural shift has to be at the heart of the response from traditional retailers. There simply won’t be a future for many of the sector’s stalwarts without it. Agile young organisations who act without fear and think customer first will eat them for breakfast, lunch and dinner.