Argos

Argos is proving a drag on Sainsbury’s overall profitability

Sainsbury’s plans to sell its Argos business to one of China’s largest retailers collapsed this weekend less than 24 hours after the late-stage talks were revealed.

The grocer said it terminated discussions with JD.com on Sunday as the Beijing-based retailer was only “prepared to engage on a materially revised set of terms and commitments”.

These were “not in the best interests of Sainsbury’s shareholders, colleagues and broader stakeholders”, the supermarket said.

Sainsbury’s confirmed it was looking to offload the business on Saturday, adding the sale to JD.com would “accelerate Argos’s transformation”.

The two sides have been holding discussions about a possible sale for months, with the grocer setting up a secret team to work on the deal, according to The Telegraph which first reported the talks.

The sale would likely have been at a substantial loss to the £1.1bn Sainsbury’s paid in 2016, with its latest accounts valuing Argos at £344m.

Argos is proving a drag on the business’s overall profitability, with Sainsbury’s noting in its latest annual report that its double-digit profit growth was “partially offset by lower profits at Argos”.

CEO Simon Roberts is keen to refocus the business on food, having opted to close many of its standalone stores and base Argos stores primarily inside supermarkets.

JD.com is relatively unknown in the UK but is one of the biggest retailers in the world with annual revenues close to $160bn. The company is listed on the Nasdaq and valued at almost $49bn.

It is now looking to diversify beyond China and is seemingly keen on a move onto the British high street. It mulled a takeover of electronics retailer Curry’s last year but walked away after US investment firm Elliott put in a rival offer.

In April it launched a pilot of its online marketplace, Joybuy, in the UK ahead of a planned full launch by the end of the year.

The company has been quietly building a highly experienced team of UK grocery buyers and category chiefs in recent months, with Matthew Nobbs, former director of trading for Holland & Barrett, named as the company’s UK chief merchandise officer in February.

Nobbs said he was “getting ready to rumble in the UK for one of China’s biggest success stories” in a LinkedIn post in April.