On the shop floor withÂ…Halfords chief executive David Wild
The significant demand in Central Europe for car maintenance and enhancement products suggests Halfords is arguably well placed to benefit from its new stores in Poland and the Czech Republic. By Glynn DavisBut when you also put the man who set up the Tesco business in Central Europe in the chief executive's seat then Halfords is surely onto a big-time winner in these territories.
During the 18 years he spent at Tesco, David Wild, chief executive of Halfords since last August, gained extensive international experience and is unsurprisingly confident about the growth opportunity for the company in the region. He does, however, constantly dampen down any over-enthusiasm from the media and City analysts.
“There is an opportunity for 200 stores in those two countries but this could be a 10 to 12 years build-out. We are committed to going deep into a small number of markets and we'll look take these two countries deep,” he says, acknowledging that this strategy mirrors that used internationally by Tesco.
The overseas opportunity arises because of not only the GDP growth prospects and ongoing development of the retail infrastructure in both Poland and the Czech Republic, but also the fact that there are already 20 million cars among their combined populations of 50 million.
What is holding Wild back at the moment with his expansion is the way these two export-driven countries have been hit hard by the downturn, which has slowed down the building of new retail parks where Halfords prefers to locate its stores. “We need new sites to expand rapidly and retail development is slowing. We had hoped for 15 new stores this year but it will now be between five and seven,” he says.
Real estate activity is not only confined to these new countries because in the core UK market Wild says Halfords has also been active. For one thing he recently knocked-on-the-head the opening of standalone cycle stores in favour of simply adding a fuller range into the mix at the company's growing superstore network - of which there are currently 375.
“We found we did not need small shops for bikes and we have been progressively closing smaller stores as we move off the high street onto retail parks. We still have 45 small metropolitan stores but if we get an opportunity to go out-of-town then we'll shut those units,” he says.
With the focus on superstores Wild says the company has identified 60 opportunities for new outlets in places such as Glasgow, London and Sheffield although he admits “the reality is that we'll then find another 50 because that's what retailers do”.
Although you'd expect plenty of sites to be up for grabs in the current market Wild says that while it might be a little easier than last year, most of the units on the market are in poor locations.
He has also slowed down the addition of mezzanine floors into the superstores having decided that the remaining 100 without such additional square footage will only undergo the change if the economics justify it. Over the next year he has calculated that it only stacks up for a couple of units.
However, the story in the UK is not so much about adding new stores (a net total of two to three per cent of total square footage will be added this year) but more about identifying the growth potential in certain product categories and services.
One clearly big opportunity for Halfords is fitting - especially around what it calls the three B's (brakes, bulbs and batteries) - as only 15 per cent are currently fitted at present.
Fitting revenue amounted to £6 million last year so a crude calculation suggests there is the potential for another £28 million to go for: “We are putting more emphasis on it. There is a lack of awareness of fitting although it grew 25 per cent last year.
While we are on the subject of SAT NAV systems, Wild admits this single product category proved one of the biggest challenges the group faced during 2008 when deflation of 30 per cent badly hit the company's numbers.
After a significant boom time with the product, Wild says the April to September figures showed a one per cent like-for-like decline in overall sales, which then collapsed to an eight per cent fall during Q3.
“Halfords had never known this sort of decline and it was all down to SAT NAV. We needed to re-orientate the business to emphasise car maintenance and cycles,” he says, before adding that this strategy ultimately helped turn things around as a lesser fall of three per cent was then recorded in Q4.
Wild believes the way the business reacted is a good indicator of how Halfords deals with booms and busts and has been able to consistently deliver its promised earnings figures to the City over the years.
Technology will still play a part in the company's plans as Wild expects to continue to tap into nascent product areas such as Bluetooth music streaming and then “ride the wave” as demand increases. And then, we assume, factor in the aftermath.
Undoubtedly helping the business keep on top of new products and innovation, as well as providing greater control over its supply chain, is its strong presence in own label products. These are especially prevalent in its core categories of car maintenance and cycles where Apollo and Carrera are key own label brands.
As well as having its own small team of product developers Halfords has sourcing offices in Hong Kong and China, which Wild says is a “real competitive advantage as we control the margin and the specification”.
The company also seems to be finally getting a handle on its online business that accounts for a modest five per cent of sales and should be heading towards a more credible 10 per cent, according to Wild, who reveals that more lines are being added online that are not available in the stores such as range extensions and variants.
Two thousand cycles were added last September, 250 camping lines were recently placed online and several thousand new products are scheduled to be sold exclusively via the web store over the next 12 months.
This will further support the impressive statistic of two-thirds of sales online being incremental. It is probably fair to say that when the cautious Wild decides to open online stores in Halfords' overseas markets then we will know that the business is really motoring.
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