Argos axes Chesterman stores at cost of 20.6m pounds

ARGOS, the catalogue-based retail group, yesterday axed its Chesterman home furnishings stores with the loss of 127 jobs, admitting that the pilot project had been a pounds 20.6m flop.

Despite heavy promotional spending, including a television advertising campaign, the four stores failed to attract enough customers. Sales last year were pounds 3m, compared with a target of pounds 6m.

The experiment, including start-up costs, operating losses, write-downs on stock, redundancy pay and provisions for exiting from leaseholds, will have cost pounds 20.6m, Argos said.

When it opened the stores between March and July last year, it believed there was a market for expensive furniture and furnishings backed by a high level of service and delivery promises.

Then it dismissed criticism that the bottom of the housing market was a curious time to launch, pointing to its meticulous market research. It planned to open 70 stores if the pilot succeeded.

Bob Stewart, finance director, said yesterday the environment had changed since then, with customers more concerned with price than service. 'The board are now of the view that the time-scale and costs for Chesterman to make a significant contribution would be unacceptable.'

On top of start-up losses in 1991 of pounds 1.7m, Chesterman lost pounds 6.2m in the year to 2 January and will lose another pounds 1.5m in the current year, before the stores are closed over the next four months.

After an additional pounds 11.2m of provisions on Chesterman - all taken above the line - Argos is expected to report pre-tax profits of pounds 65m for the year when it announces its figures on Monday. That would be up on the pounds 62.1m profit made last time.

Argos hopes to transfer some of the Chesterman staff, who are employed in north London, Chatham, Fareham and Bristol, to other parts of its business.

Despite the failure of the diversification, Mr Stewart said the long-term aim was still to become 'a multi-legged group'. That could mean either another start- up experiment or an acquisition.

The Chesterman embarrassment follows the failure of an earlier attempt to diversify outside the core Argos chain. Last year it scrapped its Best Sellers facia - stores carrying a narrower range in smaller towns.