Halfords: Matt Davies' to-do list

The skills he demonstrated at Pets at Home, such as his customer-first approach, focus on a motivated and skilled workforce and successful business building, have been lauded by analysts.

Bethany Hocking, analyst at Halfords’ house broker Investec, says: “He is a very strong hire and his background should enable him to implement Halfords’ service-led strategy.”

Halfords chairman Dennis Millard says Davies “jumped out” as the right fit for the role. He points out: “His credentials tick all the boxes.”

Davies takes over as Halfords posted a strong second quarter, in which like-for-likes advanced 5.6% against the previous quarter’s 5.2% fall. The performance led analysts to anticipate full-year profits in the upper end of expectations of between £62m and £70m.

Yet while the City is more bullish about Halfords and the latest figures pleased, Davies still has a long road to travel. In the first quarter the retailer posted a profit warning resulting in the departure of former chief executive David Wild.

A lot is riding on Davies’ shoulders. Retail Week takes a look at his likely to-do list as he seeks to take Halfords up a gear.

Developing services

Services are a key part of Halfords’ three-pronged strategy. In May, the retailer set out to be a ‘friend of the motorist’, a ‘starting point for great getaways’ and the ‘best cycle shop in town’, with services at the heart of those promises.

The retailer has made strides in this area already with, for example, its We Fit initiative offering a free service to change car bulbs, batteries and windscreen blades, but there is much more that Davies can get stuck into.

Millard says: “Two-thirds of products sold by Halfords require a degree of service and servicing. We can deliver that. We have a very receptive audience and team. Everything you do, you need to think through the eyes of the customer. You need to motivate your staff and train them as best you can.”

The retailer’s Autocentres division – its garage services – is the biggest growth area, and should also be invested in. Halfords already has plans to double its 260 garage portfolio.

For Davies, services should come naturally. At Pets at Home he expanded the retailer’s services and built up businesses such as pet grooming and a veterinary offer.

At Halfords he needs to ensure the services strategy is delivered to differentiate online rivals and build customer loyalty.

Enhancing customer service

Halfords’ customer service has been lagging and Millard made it a priority when recruiting a new boss. He says: “Three months ago I said we wanted to find someone that not only understands customer service but lives and breathes it and has a high colleague engagement, because that’s what we need at Halfords.” In its second-quarter update, Halfords said that it had started to address the issue with the training of 450 new fitting staff and the retraining of existing staff across its We Fit offer, but that is only the tip of the iceberg.

Peel Hunt analyst John Stevenson says: “They tried to take excess cost out of the business a few years ago by shedding labour. They took out too much and this was to the detriment of its service.”

Davies understands the importance of customer service and could increase staffing levels. At Pets at Home he focused on giving customers service beyond their expectations, and ensured staff were trained in product knowledge and had an interest in pets.

Harnessing the Bradley Wiggins effect

British success in both the London Olympics and the Tour de France has fuelled the nation’s cycling enthusiasm and Halfords reported a 14.7% surge in cycling like-for-likes in the second quarter, boosted by the summer of sport.

Davies should capitalise on that momentum and push Halfords’ exclusive tie-ups with 2012 Olympic winner Victoria Pendleton and cycling legend Chris Boardman.

Cycle enthusiasts have previously turned their noses up at Halfords and preferred to shop at more niche, specialist shops, but if Davies can pull off more tie-ups and get shoppers to try Halfords again he could create a wider market for the retailer.

Stevenson says: “Cyclists shun Halfords massively and online bulletin boards are full of comments against the retailer.” He explains that although the Boardman bikes have a good reputation, many cyclists take their bikes to a local independent retailer because they don’t trust Halfords to get the service right.

He adds: “David Wild unveiled a strategy not to target the hardcore cycling community. The problem is that if you don’t have credibility with the enthusiasts then you haven’t got credibility with anyone.”

Stevenson believes more tie-ups are key to winning over enthusiasts but that long-term relationships with customers will need a lot of work.

Product innovation

Halfords has worked hard to deliver exclusive products through tie-ups with cycling stars, but further work is needed. Technology, for example, needs something to off-set the decline in sat-nav sales. It tried to push digital radios to cover the decline, but that didn’t take off because cars are now sold with in-built radios.

Halfords said in May that it wanted to put more emphasis on the leisure category, which includes products such as car roof racks and camping essentials – anything that shoppers need for a holiday. But the wet summer weather meant that part of the strategy hasn’t really got off the ground so Davies should ensure there is innovation all year round, for all weathers.

Product innovation was central to Davies’ strategy at Pets at Home. One example was pet accessories, which became one of its strongest categories.

He should push innovation while keeping an eye on pricing. Stevenson maintains one of Halfords’ downfalls has been price because online retailers manage to undercut it in many instances. Competition has been heating up from online cycling rivals such as Wiggle and Chain Reaction as they grow steadily, and Amazon offers particular car accessories at lower prices.

Davies may need to look at a more aggressive pricing strategy to grow market share.

Brand awareness

Halfords has been driving its brand awareness and investing in marketing to raise its profile, particularly for its Autocentres business. This year it has heavily promoted its services offer with the strapline ‘It’s helpful, it’s Halfords’, as it sought to connect with motoring enthusiasts by sponsoring programmes such as Top Gear on the television channel Dave.

It is also preparing a new raft of radio adverts to promote We Fit as soon as the clocks go back. This coincides with darker mornings and evenings and the weather starting to turn colder and wetter, when people need their cars to be in good working order.

The new ads also have a distinctly different feel, moving away from the traditional value-led promotions and instead tapping into consumers’
emotions.

It seems with the new marketing Halfords is on the right track in attempting to change consumers’ views of a very mature business, which many associate with a tired offer. Davies should keep up this momentum.

Driving multichannel sales

After a slow start, Halfords has made some headway with online and multichannel, particularly with its recent implementation of 24-hour pick up for click-and-collect.

“Online is pretty strong for us,” says Millard, after Halfords announced a 30% surge in online sales for the second quarter.

He explains that lift is mainly thanks to click-and-collect as the majority of online orders are made through this channel, which continues to pull customers into store.

Stevenson says: “The average wait for a customer to pick up a click-and-collect order in the retail sector is days, so Halfords’ click-and-collect proposition is actually attractive.”

Halfords group digital director Clive West, who was appointed in January, also plans to introduce rapid deliveries for breakdowns.

But Davies will need to invest or risk falling behind the multichannel curve, which Halfords cannot afford to do with many rivals snapping at its heels.

Property

At Pets at Home, Davies expanded the store portfolio from 150 when he joined in 2004 to more than 300 shops. The situation will be quite different at Halfords, where the traditionally big-box retailer is trying to downsize its biggest stores and is opening more specialist bike shops in the much smaller Metro format.

“The primary issue here is flexibility,” says Stevenson. “It’s not necessarily about closing stores, but it’s about putting them where they need them.

“In Halfords’ case the lease length is an average of eight or nine years, so there isn’t much flexibility. They are currently trying out ‘lab’ stores, but even if they did find their perfect format, Halfords wouldn’t be able to deliver it.”

Wild previously said he wanted to maintain the same number of stores – at present 467 – but it is something Davies could rethink, as with the increasing popularity of online, most retailers are recognising that they can cover the UK with smaller and fewer stores than before.

Management

It is Davies’ first time at the helm of a public company, so he will need to get used to answering to his shareholders and reporting publicly each quarter – something he didn’t have to do at Pets at Home. But he has a head start as analysts reacted favourably to his appointment.

Some were surprised though at Davies’ hiring, but believe he is a good fit. “He wasn’t the most obvious person,” says Miles Partnership headhunter Sue Shipley. “Matt was in a position to be selective. He would have wanted to take on a job that appealed to his heart and mind, which this does.”

Davies might decide to bolster the management team with fresh faces to fill any skills gaps. But Millard asserts the team’s ability is already top class. “Second-quarter results show this,” he says. “It wasn’t just the summer of sport and the improved weather that helped the performance, but we traded smart.”

Staff

Halfords has recognised a skilled staff base is key and started to develop that area with the training of 450 new fitting staff for its We Fit offer.

Millard explains that the retailer screened 15,000 applications and switched its focus from looking for technical ability to primarily finding people that can engage with customers and teaching them the skills. “You could see the nuance between the people,” says Millard. “We needed that customer interface.”

Motivated staff is also what Halfords needs. When Davies joined the business he sent a motivational letter to all staff, introducing himself to them. It is expected to be his first step in creating a culture of enthusiastic workers.

Shipley believes Davies’ experience will be perfect for Halfords.“Halfords has quite a young workforce that are able and willing, but they can’t just be excited by the product – this needs to translate into sales,” she says.

Davies will need to work his magic in the same way he did at Pets at Home, bringing car and cycle enthusiasts – in the same way he did with animal lovers – to the shopfloor.

Delivering shareholder value

Davies will need to ensure he doesn’t just keep customers at the forefront of his mind, but shareholders too. Any new strategy will need to balance both, which
will be new to him, in public company context.

Shipley says Davies has a “good head for financials”, understanding the key numbers that shareholders will be keeping their eye on.

But he delivered shareholder value at Pets, enabling the business to be sold for £955m in 2010.

And Shipley points out: “There have been other cases of private equity people having gone into public companies that have done well.”

Despite his new role moving from bunny rabbits to brakes, Davies understands big-box retailing.

He starts with investor goodwill, and shareholders appear willing to let him off the leash in a bid to rev up Halfords’ fortunes.