Principal risks and uncertainties
We discuss below the principal risks and uncertainties that could impact the Group's performance and our mitigating activities. For further information on how we manage risk, see the business review and also the corporate governance statement.
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| Area of principal risk/uncertainty | Description and examples of mitigating activity |
|---|---|
| Economic and market risks Delivery of sales growth and profit impacted by:
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The economic environment, including the activities of other retailers, impacts on the Group's success in terms of sales, gross margin and cost management. Increasing costs within the utilities sector and general inflation have led to a reduction in household disposable incomes which, together with concerns regarding the ‘credit crunch’, may impact the retail sector disproportionately. The Group is committed to maintaining competitive pricing positions in its markets. We have established initiatives to support our ability to manage margin levels effectively through sourcing developments as well as rigorous cost control. The Argos brand is synonymous with choice, value and convenience and internal processes ensure that Argos is well positioned to continue to deliver value to its customers. In addition to its core home enhancement proposition available in-store and online, Homebase offers a selection of eco-products that will be further enhanced through its involvement in the 21st Century Living research programme with the Eden Project. The Group continues to consider new development opportunities outside the UK, such as the current trial of Argos in India. Other mitigating activities include:
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| Operations Failure to ensure appropriate processes are in place to manage the complexity of retail operations, including sourcing of products and customer service |
Like other retailers, the Group sources products from overseas, which increases the time between ordering and receiving products from suppliers. Efficient management processes are therefore needed to ensure stock is in the right place at the right time. We have recently evaluated our distribution infrastructure to drive further efficiency. The success of the Argos multi-channel model has heightened expectations among our customers. We strive to continually improve the service to manage this, whilst also extending the capability into Homebase. Communication with our customers is very important to us and we continually seek to balance shareholder value with customer value through promotional campaigns, particularly at key events such as Christmas, Easter, Valentine's and bank holidays. Other mitigating activities include:
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