Our strategy has 5 key pillars:
- Putting Customers in the Driving Seat – investing in customer data and insight capabilities to maximise the lifetime customer value
- Service in our DNA – embedding the focus on customer service
- Building on our Uniqueness – exclusive products, relevant innovation and unique partnerships, such as our new collaboration with British Olympian and Tour de France winner Sir Bradley Wiggins
- Better Shopping Experience – a seamless customer experience, online as well as in store
- Fit for the Future Infrastructure – moving from fixing the basics to improving efficiency and fulfillment
1. Putting Customers in the Driving Seat
The Halfords brand has a strong heritage and high awareness but it is often seen as functional and can appear old fashioned for some younger customers. So we have clarified our brand purpose and framework. Our goal is to be customers’ first choice for their life on the move and we will achieve this by being Committed to Making Customers’ Journeys Better.
We will be introducing a new marketing end line, Halfords – For Life’s Journeys, that customers will start to see next year as well as a new approach to advertising. This new brand positioning will also be manifested across key customer touch points in stores and online starting next year.
We are investing in building customer data and our insight capabilities. The data that currently exists is held in different places across the business and our relationship marketing is currently email-based with only basic customer segmentation by product. There is huge scope for improvement here in order to maximise the lifetime customer value. The benefits of this include increased frequency of visit, greater cross-shop between motoring and cycling, and higher basket size.
We will collect more data about our customers and build a single customer view across the business whilst transforming our marketing campaigns to be customer segment led, rather than product category led. This month we are introducing e-receipts into Halfords Retail enabling us to build a clearer picture of who our customers are and what they are buying. Our investments in IT will enable us to introduce coupons at till in FY17 and start to better motivate our customers through better targeting of offers and service.
We will be measuring our progress on how many customers we know and talk to and their response rates.
A Cycle Republic loyalty card is already being tested and in its first three months we matched over 50% of transactions to customers and 23% of customers made at least one return visit.
Customers are increasingly savvy in their shopping habits; for example, 45% of our customers check the price they are paying in store with the prices on the website, and that trend is likely to increase. Improving our value perception can increase our conversion of customers. Where price really matters to our customers we will be at our sharpest.
However, we know that value is complex and not just about price. Our customers are looking for an unbeatable combination of the right price, great service and outstanding quality. We are exploring a number of steps to create value leadership, including reviewing our range architecture in some key categories to ensure it reflects consumer demand across a good, better, best hierarchy and that we have the right opening price points. We will also review our own brand portfolio to ensure our own brands offer fantastic value for money. The imperative for us is to provide an unmatchable mix through a combination of price, quality, service, and collaborations with sports professionals and designers.
2. Service in our DNA
Halfords has been through a service revolution and now we need to embed it in how we do business. Our ability to offer great service is one of our key differentiators. We will continue to build on the strategies that are working for us, including the 3-Gears programme, improved recruitment processes and offering longer contracted hours to store colleagues.
We will be increasing the emphasis on service and selling in the training that we deliver. We will be ensuring we shout about the expertise our colleagues have through recognised accreditation. By the end of this financial year we will have new motoring Gear 3 colleagues in every car parts fitting store, alongside our existing Gear 3 colleagues in cycling. We’ve already seen the impact of having that higher level of skill on our cycle service and repair business.
Building our pipeline of Assistant Store Managers and Store Managers through our Aspire programme will continue and we remain committed to Apprenticeships in both Retail and Autocentres.
The new £7.20 national living wage takes effect from April 2016. We will continue to reward skills and are introducing a new supplement for completion of Gear 1 training which is 20p an hour above the national living wage for over 25s and 20p above the starter rate for under 25s. This leads to an improved combined Gear 1 and Gear 2 premium of 63p, with a further 43p for Gear 3 colleagues. We will maintain all of our geographical pay premiums over and above the minimum wage and national living wage.
We have defined a new key performance indicator that we will be using to monitor our progress in developing our services proposition: service-related sales. This comprises the revenue from the fitting or repair work plus any product sold with the service. Over the past few years this has grown at a faster rate than our overall sales. This is a key area for us and financially it makes sense, because it is higher-margin and is strategically important as it builds our specialist credentials, providing clear differentiation from generalist and online competitors. We can offer these on-demand services by having a wide store network and trained colleagues.
3. Building on our Uniqueness
Halfords occupies a unique position in the markets in which we operate and building upon this further strengthens our clear differentiation. We will do this through exclusive products, relevant innovation and unique partnerships. These all drive purchase intent and have the potential to encourage customer to trade up.
Within the motoring side of the business we have a number of new initiatives and products, some of which are immediate and some of which will be phased in over the coming months. These include:
- Rolling out digital vehicle registration look ups for stores as well as online to help customers find out exactly which blade, battery and bulb they need for their car.
- Launching the world’s first 130% brighter bulb – this is already in stores.
- Introducing a lifetime guarantee on certain car batteries, again already in stores, and increasing convenience for customers through a home delivery option.
- Extending our range of motorcycle products. We know there are over 1 million motorbikes and scooters in the UK and the market is growing and fragmented. From April 2016 we will be offering a 2B’s (bulbs and batteries) product and fitting service for motorbikes, as well as extending our range of consumables and accessories.
- Introducing new connectivity products such as wireless charging as well as fun products such as light-up cables.
- Extending our range in store and online of gifts and toys. For this Christmas we have many new products including camera drones, Disney Frozen roller skates and hoverboards as well as gift versions of our popular tool products.
There is also an opportunity to grow our share of trade customers within motoring. Our potential trade market comprises students, apprentices, mechanics, companies with fleets of vehicles and independent garages. We only address a portion of that market currently and we believe there is room to grow our penetration of customers as well as increase spend of our existing trade customers.
To do this we will be developing ranges that are specifically for trade card customers – we have no bespoke products today. Currently the cards can only be used in store but we will enable the cards on Halfords.com, both for application and transactions. We will also up-weight our marketing and in-store presence, and introduce interest-free credit for larger transactions.
In cycling, the current and future innovations include:
- Recent launch of 34 new kids’ bikes for Christmas; the first major update of this category for 3 years. We also have a new range of kids’ and junior accessories, as well as more licensed products, such as Disney Frozen and Minions.
- A new collaboration with the designer Orla Kiely under her ‘Olive and Orange’ range, with a new range of bikes, accessories and camping equipment that will launch next spring.
- A new Boardman brand and range of bikes. The Elite series launches this afternoon and the Performance series of bikes will be launched into Halfords and Cycle Republic at the end of January 2016.
- Opening a Boardman Performance Centre next year; a world-class, first-to-market project combining a cycling-specific wind tunnel and performance testing laboratory, giving the enthusiast a unique experience.
We are also delighted to announce today a new collaboration with British Olympian and Tour De France winner Sir Bradley Wiggins to launch an exclusive range of kids’ bikes next July. Sir Bradley is passionate about one thing: he wants to get more kids into cycling. And just as you’d expect from a British national hero, a winning sportsman and a style icon, he wants a bike that stands out in the market. His vision is for a great-looking range of lightweight kids’ bikes that are created specifically for under 16s. He wants his range to be high quality, accessible, affordable stylish and made for toddlers rising up to teenagers.
4. Better Shopping Experience
We can do more to offer customers a seamless experience online as well as in store. Halfords.com has been improved and is simpler and easier to use. Most recently, in August we enhanced the site look and feel to make it easier for customers to find products. Conversion has since improved by 1%. However there is much more to do. In the fourth quarter of this year we will be redesigning the web pages to grow conversion further as well as improving the quality of merchandising and content.
Investment in IT is required to create a single view of stock, which will help to enhance our online ordering reliability and we will need to invest in warehouse and distribution capability to improve fulfilment and support an enhanced customer proposition.
We have made a number of improvements to the fulfilment proposition already including adding delivery time slots, Sunday deliveries and moving to an 8pm cut-off for next day orders. We will shortly also be offering order tracking as well as extending our order cut-off again to 9pm. We will continue to develop and improve our home delivery proposition and stay close to customers as their expectations evolve.
Our current store refresh format has been well received by customers; store navigation is improved, our specialist credentials are reinforced and the overall experience is better for customers. However we can do more to modernise our store design and encourage more visits. We will be building on the strengths of the current designs but we will slow down the pace of roll-out whilst we create a more progressive “Store of the Future” refresh concept. We will also be creating a “Store of the Future Light” design in order to apply the principles to stores where the economics of a full refresh are not appropriate. In FY17 we anticipate refreshing 15 to 25 stores. Once we are happy with the new refresh approach we will determine the rollout rate for subsequent years.
The strategic rationale for Cycle Republic remains strong: we continue to anticipate the cycling market to be in healthy growth over the medium term, we under index in London and city centres, and evidence suggests engagement and the propensity to trade up is rising amongst cyclists. Through Cycle Republic we have an opportunity to grow our share of the customer segments that spend more on cycling.
Initial customer feedback has been very good with customers seeing the brand as a specialist but more approachable and accessible than competitors with a number of clear differentiation points. We will have around 10 stores by the end of this year and we anticipate opening a further 5 to 10 in FY17, in London and key cycling towns.
As referenced above, our PACs sales have performed in line with healthy market growth over recent years, but have more recently fallen below our own high expectations. Halfords is actually the largest retailer of PACs in the UK, with our sales currently concentrated around the lower priced end of the PACs range architecture. This reflects the make-up of our Halfords customer base with its bias towards leisure customers. Our research shows that around two-thirds of spend in the PACs market is concentrated on more serious fitness cyclists. The opportunity exists to grow penetration amongst these cyclists but we need to do this through the right channel.
In FY17, we will launch a dedicated transactional Cycle Republic website designed and ranged to cater for the more serious fitness and commuter cyclists with Halfords.com focusing on the mainstream and family market. This will enable us to have a clearer and more compelling offer for the different customer segments. We will also be reviewing our pricing and value proposition. Whilst we do compete favourably on price on key branded PACs lines we have an opportunity to improve our own label proposition where we can be seen as expensive.
We see our plans in PACs as a medium term development and in the meantime we have lots of other exciting areas to grow in as well.
5. Fit for the Future Infrastructure
There are 460 Halfords Retail stores, 98% of which are profitable. Our wide store network is a real asset and we do not anticipate a significant change in the numbers of Halfords stores in the medium term. Our strategy is focused on right sizing, relocating and renegotiating leases when possible and this will continue. Between 2013 and 2015 we have completed 16 right-sizes, 15 relocations and 64 lease renegotiations, reducing rented space by 160,000 square feet, the equivalent of around 18 stores, and decreasing rent and rates by over £2m. Going forward, we have 93 leases expiring between FY17 and FY20 and we will continue to look for opportunities to right-size, relocate and renegotiate leases.
Our warehousing and distribution cost to sales ratio has grown in recent years as a result of increased volumes and bigger cube sizes through our logistics network, courier costs, external storage and the move to 5-day deliveries. We successfully transitioned to an outsourced 3-day delivery model in August 2015, which is serving us well for the medium term. However, we know that our distribution capability will have to improve in the future to support our growth. We are reviewing the options and will provide an update on the solution at the preliminary results announcement next summer.
A lot of work had to be done in IT over the past 2 years improving the core architecture so that it is fit for purpose today. We are now concentrating our resources on our colleague and customer facing applications ensuring that they are flexible and can support our growth. They will provide group wide efficiencies and help improve business processes. There are opportunities for IT to support our central teams to get it right first time for colleagues in store, ensuring they have the right tools for the job.
Examples of investments we’ll be making over the next year or so include:
- Implementing an in-store labour management system to reduce store workload and bring efficiencies from optimising colleague scheduling.
- Replacing our till hardware and software to make customer interactions quicker, to reduce store workload, and to facilitate sales growth opportunities, such as targeted offers.
- Introducing CRM capability so that we can maximise the lifetime customer opportunity.