The high price of petrol and dwindling sat-nav sales have hit Halfords, but the retailer aims to map out new routes to success.
Halfords has been pedalling hard to leave behind its overalls and oil-stains image as a bikes and car-parts big-box business.
Instead it is moving towards a positioning as a more creative type of store where adventures begin and customer care is key.
Halfords’ latest summer TV advert, which has had more than 18,000 hits on YouTube, epitomises that new image. The retailer no longer focuses purely on value with its orange-and-black logo in the background, but taps into the consumer psyche with a nostalgic theme, emphasising experience as well as product.
The shift comes as the retailer battles tough trading conditions, reflected in a 26.6% fall in full-year profits reported last week.
Halfords chief executive David Wild says: “We’re hoping to inspire customers with a life on the move. It’s important that we understand what they’re looking for from us through the services, the expert knowledge and the right deals and price points.
“What we’ve got to do is combine the summer advert with the value-focused price ads. We’ve got to change the way people think.”
Wild believes many consumers are unaware of Halfords’ “unique” service proposition and that strength, along with exclusive product, is something he wants to address more effectively.
Halfords has set aside £6m to invest in the company this year and is planning to devote a chunk of it on marketing its Autocentres garages and promoting its cycles. It has already started sponsorship on the Dave TV channel to market the customer service offer in the Autocentres.
The retailer has begun to invest in extra training to improve customer engagement levels and has allocated £1.5m increasing the number of staff that have fitting and cycle repair skills.
Halfords has evolved its strategy to focus on three pillars: ‘friend of the motorist’, ‘the best cycle shop in town’ and ‘starting point for getaways’ in order to deliver increased profits by 2014.
And being a friend of the motorist is evident at the Autocentres division, where Halfords is taking the opportunity to shift from being a purely product-driven retailer to a service-led business.
The acquisition of Autocentres in 2010 for £75m has been key to growth at Halfords. Last year, revenues at the 260-branch Autocentres division rose 12.9% compared to a 2.3% decline at the core retail business. Halfords aims to open a further 30 Autocentres in this financial year.
Halfords chiefs believe long-term growth prospects at the Autocentres remains “compelling”. They think that fragmented competition in an auto-aftercare market worth £8bn to £10bn, puts it at an advantage particularly with 32 million cars on the road.
Alongside the large garages, Halfords offers a ‘do it for me’ Wefit service in store, which focuses on installing car bulbs, windscreen blades and batteries.
Halfords now fits 26.2% of the bulbs, blades and batteries it sells to build on a “distinct” customer offer in a market estimated to be worth £950m.
And it plans to offer further innovative products such as the Brakes-4-Life scheme, which entitles customers to free brakes forever once they have bought and had the parts fitted at Halfords.
Wild says: “Research shows there is significant opportunity in areas like fitting, but customer awareness is low so we need to focus much more on advertising, but it’s not just about product and price: it needs to be more about value [through the fitting and service add-ons].”
The increased emphasis on service was partly triggered by the impact of the recession on Halfords and high fuel prices as consumers at times tried to drive less.
Like-for-like sales of car maintenance products slumped 4.5% last year as motorists drove fewer miles, and a warmer winter than expected meant sales of de-icers, screen wash and batteries – usually in demand then – were down.
The weather has also not helped performance in the key cycling category in the new financial year. Retail sales have been “very disappointing so far”, the retailer reported and cycling was among the categories hit.
Halfords is confident, however, that many sales have been deferred rather than cancelled.
The cycle market is estimated to be worth £1.4bn and Halfords wants to do better. The retailer reported: “Although we are the biggest provider of cycles to the UK market, at a local level and online we are not necessarily always the best cycle shop in every town.”
Wild says: “It starts with products and you need the right range.” He believes Halfords’ price points, from its entry point Trax range up to its exclusive selection of Boardman bikes, give customers the right range mix.
The focus on own-brand is partly because Halfords has been unable to stock some of the big-name cycle brands that it would like to. As an alternative it has developed own-ranges in partnership with well-known cyclists, such as top professional cyclist Chris Boardman and Olympic cyclist Victoria Pendleton.
Halfords said it will “continue to develop and improve our existing brand and introduce new ones that offer value and appeal to our customers.”
Already it has developed the Carrera Virago bike which has a price tag of just under £1,000 and a carbon fibre structure aimed at the road racer. Halfords reports that if this has been well-received by mainstream media and specialised cycling press.
Investec analyst David Jeary believes there is an opportunity for Halfords to increase its cycling accessories offer, which online rival Wiggle does well on. Halfords estimates the parts, accessories and clothing market is worth £615m annually and the retailer intends to increase its market share on the back of “significant opportunity” in “this higher margin area”.
Service with a smile
Cycles is another category in which Halfords offers service – 95% of the cycles it sells it also builds. It also offers a free service after the first six weeks of ownership.
Getting on a bike is, of course, one starting point for getaways, but Halfords sees a bigger opportunity in leisure. According to the retailer, it is likely that this year more families than ever will holiday in Britain so it aims to drive sales of the equipment they will need on ‘staycations’, such as roof boxes, tents and camping gear.
Halfords posted leisure like-for-like sales up 9% last year.
Within the category it sees opportunity to sell products for motorists to reach their destinations, such as tyre pumps, warning triangles and high visibility jackets. The Autocentres can also play a part by servicing cars before customers start their journey.
At a broad business level Halfords recognises that its store portfolio needs to evolve with strategy. The retailer’s estate comprises 467 stores, excluding Autocentres, and 90% of its customers live within a 20-minute radius of a shop – a convenience factor that Wild wants to keep.
But, he also wants to negotiate on leases to save costs. That opportunity will come over the next five years as 130 leases expire.
“We’re in no rush to close stores and there are opportunities to extend the estate in London,” says Wild. “We will definitely reduce the size of the stores, no question, but it will be a progressive reduction over the course of the next few years.”
Despite the fall in profits disclosed last week, Jeary believe Halfords long-term prospects still look good. He says: “Halfords is interesting because there is no direct rival, no one else offer exactly the same product mix.
“Its Autocentres are competing against other dealerships and independent garages, while its leisure range will compete with outdoor specialists.
“But this is where Halfords’ service comes into play as two thirds of group sales now have a service overlay.”
Seymour Pierce analyst Freddie George said he had feared before last week’s results that Halfords’ strong performance would fall back. He says: “Although trading has clearly been tough for a number of reasons, including the weather, our view of 10 months ago now seems worryingly accurate.
“Our concerns were that Halfords retail was mature and had enjoyed supernormal profits over the past two years, benefiting from advantageous product trends and staycation shopping habits.”
But Jeary argues that the new strategy is comprehensive. “They know where they’re going and they have laid themselves a roadmap. Although they still have to deliver on it, everything looks sensible and deliverable,” he says.
Wild says: “We’re living in an uncertain world but we do have significant growth opportunities and we will push those areas.” He is confident he can carry on pedalling Halfords to a new future, even if there’s some uphill work along the way.
Multichannel - Recognising the power of online
Halfords has perhaps been slow to take advantage of online and multichannel opportunities but that is changing.
Online accounts for 9% of Halfords’ sales, and 10% of that is through mobile devices. However, although the retailer reported that although there were “significantly” more visitors to its site last year, fewer of them converted to sales than the previous year.
Over the past few months, Halfords has recognised the power its online presence could be. It appointed its first digital director, Clive West, earlier this year to refresh the site and improve the online ordering process and click-and-collect service.
Investec analyst David Jeary says: “One of the things they have already done is improve speed of delivery into stores. Before, customers were entirely dependent on store deliveries that may be as few as once a week, which can be inconvenient.”
One significant development has been the next-day reserve-and-collect service from any Halfords store on orders placed before 6pm. Halfords is also experimenting with new multichannel ideas in three ‘laboratory’ stores in Uxbridge, Cheltenham and Nuneaton. “All three stores are a more comfortable browsing experience,” says Wild. “[Integrating online] is partly about using in-store screens to let customers research properly and give them clear information about products.”
Wi-Fi will also be installed in all three stores in order to enable staff and customers to have better access to the Halfords site and research products more fully. Online is expected to aid the reduction of store size as there is the option to move products online and out of stores in categories where sales are not growing, such as sat navs. That will enable a stronger focus on products in growth categories such as leisure and cycles.