Analysis: Have the wheels come off Halfords’ new strategy?

The motor and cycling specialist suffered a 3.9% drop in total revenues in the 20 weeks to August 16, and trimmed its full-year profit expectations from £59m, which would have been flat year-on-year, to between £50m and £55m.

Within its retail division, where sales slumped 4.8%, Halfords suffered a 5.9% dip in motoring revenues, while cycling sales declined 1.1%. Boss Graham Stapleton attributes the sales slowdown to a combination of “poorer” summer weather and a lack of consumer confidence preventing shoppers from loosening their purse strings for big-ticket purchases.

The retailer’s 3.9% fall in like-for-like retail sales is particularly bruising, considering that Halfords ploughed investment into “refreshing the cycling space” across 220 of its stores during the period.

And Stapleton warns that “given the uncertainty of the current environment”, Halfords does not anticipate its sales to improve significantly for the remainder of the financial year.

“In previous financial years we might think we could recover in the second half with stronger sales, but given the current climate, we have to assume in our guidance that things will carry on as they are now,” he says.

Dodging the weather

It is a gloomy backdrop against which Stapleton is attempting to deliver his new business strategy. The former Dixons executive’s plan, unveiled at the beginning of this year, is designed to “inspire and support a lifetime of motoring and cycling”. It takes a three-pronged approach of offering a more specialised and service-led shopping experience, bolstering the retailer’s convenience offer and increasing cross-selling across Halfords’ cycling, motoring and autoservice divisions.

But nine months and two profit downgrades in, is the specialist retailer’s strategic shift on the right track, or are the wheels coming off?

Stapleton is steadfast in his belief that Halfords is making progress. Despite overall revenue declining, the retailer’s online sales rose 8.4% during the period, with 85% of orders made online collected in store. Stapleton also points to the 1.1% increase in autocentre like-for-likes during the period and says that its services and B2B divisions are on course to comprise 38% of group revenue by the end of the year.

Stapleton argues that bolstering the retailer’s range of services, including MOTs and Halfords Mobile Expert – which offer a range of services to shoppers including tyre-fitting and a full oil change away from stores – will allow Halfords to better mitigate against the external factors that have dampened its current sales, such as extreme weather shifts. Indeed, the retailer currently has eight vans in operation across Birmingham, London and Manchester regions and will roll out 150 Mobile Expert vans in the coming years.

“People need an MOT regardless of what the weather is doing,” he points out.

It’s a view that GlobalData analyst Amy Higginbotham concurs with. “The less discretionary nature of motoring services means that autocentres are more resilient to low consumer confidence, and Halfords is wise to continue investing in this division,” she says.

Halfords is also in the process of integrating its ecommerce divisions to bring its product and service propositions across motoring, cycling and autocentres onto one platform – an initiative that is set to be completed by the end of the year.

Stapleton is confident this initiative will increase sales across the business, highlighting the 10% uplift in the number of customers who have shopped across both Halfords’ stores and autocentres year on year.

Becoming a super-specialist

Higginbotham says despite the retailer’s decline in sales, Stapleton’s strategy “to turn Halfords into a ‘service-led super-specialist’ and focus on integrating its retail and autocentre divisions is sound”.

But delivering on this strategy if sales and profits continue to decline will become increasingly difficult.

Halfords fended off a deeper fall in profits through a combination of improved gross margins and tight cost control, achieved through a combination of initiatives such as installing a new procurement team to negotiate existing contracts with suppliers and securing better rent deals from landlords.

Although those strategies have proved successful thus far, chief financial officer Lorraine Woodhouse admits Halfords “would not rule out” a broader business restructure if necessary to keep costs down.

Stapleton says there could be an opportunity to “redistribute resource, and particularly people” from stores to other divisions of the business, such as services and B2B if redundancies were made, though Woodhouse stresses that “a significant redundancy plan” was not on the table.

Halfords’ new strategy is showing green shoots of growth as demonstrated by the increase in cross-channel customers, rising online sales, double-digit growth of B2B sales and a wider rollout of Mobile Expert vans following positive customer response.

However, the speed bumps that have slowed the retailer’s progress so far this year – Brexit and the British weather – show no signs of disappearing.

Stapleton’s vision for Halfords may be the right one, but making it a reality in turbulent and uncertain times may require the business to pedal faster.