Diversifying with the savvy of a start-up, motoring and cycling specialist Halfords is applying its expertise to needs-based revenue streams, positioning itself to remain resilient as households feel the pinch.
Driven by its focus on services, B2B revenues and online, Halfords delivered pre-tax profits of £96.6m in the year to April 1, up from £64.5m the year before, as group sales rose 6% to £1.4bn.
Despite warning on challenges around inflation and reduced demand – retail like-for-likes slipped 0.6% year on year but remained 15.2% ahead of pre-pandemic levels – Halfords remains optimistic that its service-led strategy and the extension of its offer will strengthen the business in the face of macroeconomic headwinds.
Here are five things you should know about the retailer from our Prospect analysts.
1. Prospect forecasts
While it shares industry-wide concerns about inflationary pressure, the labour market and global supply chain issues, Halfords’ needs-based revenue streams in servicing and repairs should help it weather the impact of reduced demand as the cost-of-living crisis bites.
Fortunately for Halfords, the shift in its product mix towards cycling and away from motoring during the pandemic was relatively short-term – the lower-margin cycling category can be particularly vulnerable to foreign exchange movements and the weather.
However, while the retailer has worked hard to build a “larger and stronger services business”, with a heavier focus on motoring, it anticipates reduced demand hitting higher-ticket items in the coming months.
Halfords concedes that forecasting its financial performance in the current financial year “with any degree of certainty” is challenging, but it has confidence in its long-term strategy.
Prospect predicts that Halfords’ sales growth will continue, albeit at a slower rate, and estimates that group sales will edge towards £1.6bn by the 2026/27 financial year, with online accounting for almost 50% of that total.
2. More profitable product-to-service mix
Halfords’ strategic shift towards motoring services has continued. After buying the National tyre and servicing chain in December 2021, its motoring arm contributed 70% of total revenue in 2021/22.
While retail revenues declined on a year-on-year basis, Halfords described the growth of its services offer as “the most transformational change” it has made to the business, bringing in revenues of £531m in 2021/22 – up 79% on a two-year basis – accounting for almost 40% of total revenue.
This diversification into motoring should help Halfords to weather the cost-of-living storm that is battering retail.
Halfords boss Graham Stapleton says: “The fact that our products and services in this category tend to be needs-based rather than discretionary will help us to navigate our way through the well-documented macroeconomic uncertainty that we are currently seeing.”
3. Integrating its offer
The launch of a new group platform in February 2020, built on Salesforce B2C Commerce Cloud, has helped bring together Halford’s multiple revenue streams, enhancing convenience for consumers.
Consistent with Stapleton’s customer-centric strategy, the platform gives customers access to integrated services across stores, mobile and autocentres.
Not only does the single integrated trading platform help to combat any potential disconnect between Halfords’ varied business operations, but it also ensures customers are aware of its full breadth of products and services and able to conveniently use them via one website.
For instance, a customer buying a car component can also be offered services through the site, such as having the item fitted at a store or at home by one of Halfords’ mobile mechanics.
4. Building a B2B ecosystem
Further demonstrating its tech know-how and diverse offer, Halfords entered the B2B software market last year when it launched Avayler.
Developed to manage Halfords’ own retail stores, garages and fleet of mobile vans, and bringing together in-house built services and systems, the software has now been monetised and made available to other companies looking to streamline service delivery.
With American Tire Distributors signed up as the first external Avayler customer, Halfords has created a potentially lucrative opportunity to broaden its revenue streams and reduce its reliance on retail operations.
5. Bringing touchpoints together
Halfords’ Fusion concept – trialled in Halifax and Colchester, with a view to launching in towns across the UK – further integrates the retailer’s offer, tying together its physical and digital channels.
Working in conjunction with online and home delivery, Fusion brings together a new-format Halfords store, an updated Autocentres garage and a Halfords Mobile Expert offer across a town.
The desired result is stores, garages and vans – all the retailer’s assets – working as one, with customers able to seamlessly transition from one touchpoint to another, giving them convenience and consistency.
The results of the trials have been encouraging. Halfords noted that giving its employees the ability to book customers into any of its services is driving a “step-change” in the number of consumers shopping across more than one of its propositions.
Around a fifth of the Halifax garage’s revenues are driven by referrals made through on-demand WeCheck services, carried out in the Halifax store car park by retail employees.
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