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Halfords' strategy is to maintain and leverage its core strengths
and develop new opportunities for growth. Halfords management team
are focused on delivering additional sales growth and improving
operating margins by:
The Group has considerable experience in both converting existing stores and opening new stores. The Directors believe that this experience means that they can continue to convert and open stores efficiently and cost-effectively going forward.
Halfords' marketing and trading strategy is designed to maximise like-for-like sales growth and to develop a customer offering that distances the Group from its competitors.
The marketing strategy focuses on the communication of discounted product promotions to increase footfall and enhance the perception of Halfords as a price leader, whilst also promoting its sub-brands, such as Ripspeed and Bikehut, to increase and diversify the customer base.
Halfords' trading strategy is aimed at increasing the number of products purchased by customers on each visit to a store through dynamic use of store space in order to sell products which are seasonally relevant or which are otherwise being specifically promoted. The Directors have also increased staff participation in sales-related incentive schemes and have implemented specific incentives at peak trading periods.
The Directors intend to continue to leverage Halfords' brands into new categories and product ranges, thereby increasing like-for-like sales, such as:
Halfords has historically been able to use its buying power to negotiate preferential terms of supply and volume discounts with most of its key suppliers. The Group's intention is to review its sourcing of merchandise with the objective of using its scale advantage to reduce its total number of suppliers where doing so improves buying terms and provides the opportunity to increase margins.
The Directors believe that sourcing products directly from the Far East represents a significant opportunity to further expand the Group's margins particularly in respect of own branded products and it is their intention to increase the volumes of products that Halfords imports directly.
In recent years progress has been made in improving operational efficiency and the Directors intend to maintain the existing focus on cost and working capital control going forward. There are three areas in which the Group is maintaining specific focus: distribution and sourcing costs, information technology costs and packaging related expenditure.
To maintain the current level of distribution and sourcing costs as a proportion of sales, a series of measures to increase both throughput and storage capacity are being implemented. These measures include:
The Group is also investing in a three-stage IT strategy to upgrade its systems in key commercial operations and to eliminate its reliance on the Boots mainframe computer systems. Whilst this is likely to result in an increase in IT costs in the current financial year, IT related costs are expected to reduce in subsequent years primarily due to lower staffing costs. In addition, this new IT platform is designed to improve store replenishment capability and increase on-shelf availability, whilst lowering stockholding costs, improving warehouse efficiency and providing a more modern and flexible infrastructure.
Halfords recently performed a review of the packaging specification appropriate to each of its product ranges. This review has highlighted areas where future packaging costs can be reduced.
- developing its property portfolio by converting existing stores and opening new stores;
- continuing to introduce effective and complementary marketing and trading practices;
- leveraging its brands into new product and service categories;
- improving product sourcing channels; and
- increasing operational efficiency.
Developing its property portfolio by converting existing stores and opening new stores
The Group has considerable experience in both converting existing stores and opening new stores. The Directors believe that this experience means that they can continue to convert and open stores efficiently and cost-effectively going forward.
- store conversions & mezzanines
The Group is continuing to roll out its Arcade format into its superstores; as at 30 September 2005, approximately 94 per cent of the Group's superstores were in these formats.
Dependent on store size, existing format and estimated market potential, future Arcade conversions may include the introduction of a supermezzanine floor and mezzanine floors in existing Arcade superstores may be extended to supermezzanine proportions. These mezzanines increase space for proven ranges (such as in-car technology and cycling products) and for new ranges (e.g. the introduction of an expanded range of child safety and play products). The Directors believe that, through both new mezzanines and mezzanine extensions in over 200 superstores, Halfords has the potential to increase its retail selling space by approximately 20 per cent. without, in general, any concurrent increase in rent.
Halfords has also created a refined version of the Arcade format, known internally as “Metro”, for its small stores which are located in high streets and other urban locations. The new format offers a range of products which appeal to the high street consumer but which the Group had previously only sold in Arcade superstores.
- new stores
Halfords intends to continue
opening new out-of-town superstores in the low-cost SMART Arcade
format as part of its store portfolio development strategy. This is
likely to involve a small number of new superstores each year, as
suitable properties become available. These new superstores will
include a supermezzanine floor, where appropriate.
The Directors also believe that additional new format small stores, of approximately 3,000 sq. ft., provide another potential source of sales growth. The Directors have identified approximately 80 high street and other urban locations as being the most suitable for new small stores.
The Directors believe that the Halfords customer offering may be attractive to certain overseas markets. However, international expansion is not a core element of the Group's strategy and the “Halfords” name is registered as a trademark by another proprietor in a number of European countries.
Continuing to introduce effective and complementary marketing and trading practices
Halfords' marketing and trading strategy is designed to maximise like-for-like sales growth and to develop a customer offering that distances the Group from its competitors.
The marketing strategy focuses on the communication of discounted product promotions to increase footfall and enhance the perception of Halfords as a price leader, whilst also promoting its sub-brands, such as Ripspeed and Bikehut, to increase and diversify the customer base.
Halfords' trading strategy is aimed at increasing the number of products purchased by customers on each visit to a store through dynamic use of store space in order to sell products which are seasonally relevant or which are otherwise being specifically promoted. The Directors have also increased staff participation in sales-related incentive schemes and have implemented specific incentives at peak trading periods.
Leveraging its brands into new product and service categories
The Directors intend to continue to leverage Halfords' brands into new categories and product ranges, thereby increasing like-for-like sales, such as:
- outdoor leisure
recognising the close fit to
Halfords' existing product range and the fragmented nature of this
market, the Group trialled a range of outdoor leisure products
(including tents, camping equipment and sleeping bags) in certain
of its superstores during the 2004 financial year. The trial was
successful and the range was rolled out to all of its superstores
in March 2004 and a range of own-brand products was introduced
during 2005.
- child travel and safety
sales in this category is one of Halfords' fastest growing product areas, which consists primarily of child car seats, increased by 78 per cent. during the 2004 financial year to approximately £12 million, to become one of Halfords' fastest-growing product areas. The Directors believe that customers are attracted to Halfords' stores because they associate the Halfords name with reliability and safety, and because the stores offer a wide range of child car seats and an in-store fitting service. The Group's strategy is to leverage the success of this category into contiguous product ranges such as child play items;
- expanded and new customer service offerings
the Directors believe that its “We'll fit it” and “We'll repair it” service offerings differentiate Halfords from its competitors, and that these customer service offerings attract customers to its stores. The Directors intend to grow the “We'll fit it” offering by increasing the penetration of the current offering (e.g. through staff training and focused advertising) and expanding the range of products for which fitting is available. The Directors also intend to expand the range of customer service offerings available. For example, Halfords is currently trialling in certain of its superstores a dedicated automotive advisory service known as “Auto Clinic” which offers a range of services, including valeting and scratch and dent repair services provided by third parties;
- business-to-business
the Directors believe that non-retail customers, such as independent car mechanics and small owner-managed garages, provide a potential new customer base for the Group. Halfords is currently targeting this customer base through the roll out of the Halfords tradecard discount programme together with its in-store trade counters in a number of superstores. In addition, the Group is expanding its market by supplying products direct to businesses. For example, Halfords supplies a focused range of Halfords and independently branded car-related products to BP to be retailed through BP Connect forecourts; and
- in-car technology
the Group closely follows market trends such as the introduction of CD and DVD systems and satellite navigation and updates its product ranges and fitting capability accordingly. In addition, given the Group's purchasing power for products in this category, Halfords has the ability to offer very competitive prices on new products as they come to market, if it chooses to do so.
Improving product sourcing channels
Halfords has historically been able to use its buying power to negotiate preferential terms of supply and volume discounts with most of its key suppliers. The Group's intention is to review its sourcing of merchandise with the objective of using its scale advantage to reduce its total number of suppliers where doing so improves buying terms and provides the opportunity to increase margins.
The Directors believe that sourcing products directly from the Far East represents a significant opportunity to further expand the Group's margins particularly in respect of own branded products and it is their intention to increase the volumes of products that Halfords imports directly.
Increasing operational efficiency
In recent years progress has been made in improving operational efficiency and the Directors intend to maintain the existing focus on cost and working capital control going forward. There are three areas in which the Group is maintaining specific focus: distribution and sourcing costs, information technology costs and packaging related expenditure.
To maintain the current level of distribution and sourcing costs as a proportion of sales, a series of measures to increase both throughput and storage capacity are being implemented. These measures include:
- increasing delivery frequency to key stores, through consolidation across Halfords' distribution centres to be achieved through cross-docking and the extension of working hours at the distribution centres; and
- introducing origin consolidation for products sourced in the Far East, with the option for direct-to-store deliveries particularly for seasonal and promotional products.
The Group is also investing in a three-stage IT strategy to upgrade its systems in key commercial operations and to eliminate its reliance on the Boots mainframe computer systems. Whilst this is likely to result in an increase in IT costs in the current financial year, IT related costs are expected to reduce in subsequent years primarily due to lower staffing costs. In addition, this new IT platform is designed to improve store replenishment capability and increase on-shelf availability, whilst lowering stockholding costs, improving warehouse efficiency and providing a more modern and flexible infrastructure.
Halfords recently performed a review of the packaging specification appropriate to each of its product ranges. This review has highlighted areas where future packaging costs can be reduced.