Multichannel general merchandise giant Argos is to move into new product categories as it chases growth in tough trading conditions, which led to a plunge in profits.

The retailer is to launch into clothing, as revealed by Retail Week (October 22, 2010), with a 600-line range, and books following a successful trial.

Home Retail chief executive Terry Duddy emphasised that Argos is not positioning itself as a fashion retailer but sees opportunity to cross-sell items such as character T-shirts for children. However, the range, which will debut in the autumn/winter catalogue, will also include sports and outdoor clothing and branded casualwear for adults.

The initiative marks a return to a category that Argos has had no serious presence in since the disposal of its Additions brand as part of the sale of GUS Home Shopping to Littlewoods in 2003.

Duddy said: “We see it as an interesting area of potential growth, but not a lurch into product in which we don’t have experience.”

After a successful trial with an undisclosed third party in children’s books, Argos will sell 5,000 titles in a variety of categories. The retailer will also extend its multichannel operations with the launch of a TV shopping channel this summer.

Argos’s benchmark operating profit fell 18% to £219m in the year to February 26, when sales slipped 3.5% to £4.19bn and like-for-likes dropped 5.6%.

Duddy rejected suggestions that Argos is under pressure from the big grocers’ incursions into non-food. He said Argos has been outperforming Tesco’s general merchandise business and has maintained its market share positions and extended share in categories including computing and white goods.

He said Argos’s performance last year was “probably more related to the market than the Argos model”. He said competition was tough but not to “necessarily believe that if Tesco is growing, Argos can’t grow”.

Duddy will run Argos from June on an interim basis following the decision of managing director Sara Weller to leave for personal reasons.

Argos’s sister chain, Homebase, recorded a 16% rise in operating profit to £47.6m on sales down 1.4% to £1.55bn. Home Retail’s group benchmark pre-tax profit fell 13% to £254m on sales down 3% to £5.85bn.

Arden analyst Nick Bubb said the market is pricing in a poor year for Argos, but profit expectations may be too high if Tesco fights back in non-food. He said: “Some investors dream that Asda will bid for Home Retail, but we would be surprised.”

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