How Halfords Is Driving Change on Its Risk Journey
Vehicles that can rapidly change into protective or predatory robots is the premise of the blockbuster Transformers movie franchise. These anthropomorphic “aliens” are more than fighting machines. They are shape-shifting sentient beings capable of human expression and the ability to adapt to emerging risks and threats to protect, survive, and thrive.
The universal analogy can also be used for businesses that are corporate entities competing for sales in a ruthless market economy bent out of shape by commercial and economic realities and existential global crises such as war, global pandemics, and climate change.
These organisations may appear faceless, corpulent corporations, but in reality, they are living, breathing legal entities in their own right—comprising millions of complex working parts, the most important components of which take the form of employers and employees.
But almost three years ago those parts stopped working and the all-too-human face of business was laid bare as COVID-19 lockdowns fuelled furlough schemes and, in the case of retail, closed all but essential stores and head offices, some never to re-open as those businesses adapted to hybrid working and greater emphasis on online sales.
Halfords Adaption to Change
Transformers is perhaps not such an alien concept to car and cycle accessory retailer Halfords, which after all is in the business of moving wheels within the wheels of its own transformative journey. During the pandemic it was categorised as an essential business and was able to change shape and operate as a “dark store” concept allowing customers to collect items without entering the store in order to keep the UK mobile.
Loss Prevention Magazine Europe featured Halfords in its Autumn 2019 issue, just a few months before the pandemic began to rear its ever-morphing head around the world. Even then the feature looked at how the business adapted to the change of seasonal shifts through a high-profile “Ready for Winter, Ready for Summer, Ready for Anything” television campaign. Here, the focus of the article was the all-important and sometimes elusive stock file accuracy, whatever the weather.
The brand approach had to seamlessly span 365 days a year and all of the seasonal demand—from the summers of camping, cycling, and festivals where Halfords supports family journeys with its roof boxes and bike racks, sat-navs, and smart technology—to winter and Christmas campaigns of cold starts, bulbs, and batteries at one end of the scale and the warm glow of festive excitement at the other as a result of the stores selling in excess of 1 million bikes every year.
In this respect, the business is not just reflective of the changing seasons but a barometer of our ever-changing world. Little did it know then that its planned evolutionary path was about to be shifted up a gear as global events set about testing its mettle to the max.
100-Plus Year History
Founded as a wholesale ironmongery company by Frederick William Rushbrooke in 1892, the Midlands-based business grew rapidly and in 1910 opened more than 100 stores to capture the growth in the cycling craze.
Today, a FTSE 350 business based in Redditch, Worcestershire, Halfords has always been at the vanguard of change and social mobility and was a major facilitator of the commercial development of cycling and the expansion of the motor industry that was based all around the Midlands.
There has been a symbiotic relationship between the two forms of mobility, and although one’s star was on the ascendancy and the other on the wane, Halfords was able to meet growing consumer demand.
Concerns over climate change and increasing CO2 emissions and NOx fumes that were driving cities to introduce clean air zones had increased the sale of bikes for not only recreational purposes but as a practical alternative to the car as a means of getting to and from work, as local authorities have striven to create safer cycle routes as part of a campaign to reduce obesity and promote healthier living.
But with the pandemic and the requirement for social distancing and working from home, Halfords, like other leisure retailers, was inundated as the so-called “bike boom” took hold, creating supply chain challenges as demand out-stripped supply around the globe.
Cycling levels in the UK were at the highest level since the Government’s walking and cycling statistics were first recorded in 2002, with cycle trips up by 26 per cent and the miles cycled increasing by 62 per cent, more than double the average distance covered by pedal power.
The Bicycle Association’s 2020 report provided detailed analysis of cycling industry sales and growth during the pandemic and illustrated the change in the cycle market in the UK.
Retailers saw sales grow by 60 per cent after March 2020, with e-bike sales more than doubling. Between April and September 2020, the UK cycling market saw a 27 per cent rise in sales volume and a 26 per cent increase in average prices, compared with the same period in 2019. During the first year of the pandemic, the cycle market in the UK was estimated to be worth £2.2 billion.
While 2021 was not quite as elevated, the cycle industry is today bigger than it has ever been, with Halfords continuing to benefit from the market growth.
Their Automotive Connection
Halfords has never just been about bikes, a fact highlighted in 1965 when Halfords was acquired by the oil company Burmah that owned them until 1984.
In 1973, the company began what was to become a long history of acquisitions and purchased a small motor accessory company that was managed by Mark Rushbrooke, the grandson of Halfords’ original founder.
In 1989, ownership moved once again, this time to Boots, which was the custodian of the brand for thirteen years before it was acquired by venture capitalists CVC in 2002.
Two years later, Halfords was floated on the London Stock Exchange, a move that enabled it to expand its offering and in 2010, the acquired became the acquirer when Halfords bought the autocentres business, a move that was to set in motion a larger focus on not just car accessories but the complete vehicle care and repair package.
Transformation and Acquisition
A lot has changed since the 2019 Loss Prevention Magazine Europe article was published, particularly as Halfords has now moved from the position as the UK’s leading retailer of cycling and automotive products to having more of a garage-centric focus.
In 2019, the business had 460 stores and 300 autocentres, which, the corporate website boasted, meant that 90 per cent of the UK population was never more than 20 minutes away from a Halfords-owned frontage, not to mention a click away from its website.
However, that was about to move up a gear when, later that year, Halfords went on a new and strategic acquisition trail with the purchase of Scotland’s McConechy Tyre and Auto Services for more than £9 million, giving the business a stronger foothold north of the border.
This was followed in December 2021 with the acquisition of National, which trades as National Tyres and Autocare, Viking Wholesale Tyres—one of the UK’s largest tyre wholesalers, and Tyre Shopper. In total this £62 million deal provided Halfords with 239 tyre and SMR (service, maintenance, and repair) garages and sixty mobile tyre fitting vans overnight, although the chain continued to trade under the same name following the acquisition. In October 2022, Halfords announced it had also acquired the UK commercial tyre business Lodge Tyre Company for £37.2 million.
Now, in total, Halfords has over 1,200 stores, garages, and expert vans delivering home automotive services nationwide. The business now employs more than 11,000 colleagues across the estate.
While the transformation has been good for business with group revenues rising to £1.38 billion, up 6 percent on 2021, the strategic shift has been profound. While maintaining its market-leading retail presence in cycle and automotive accessories, a larger proportion of its wider business is now more focussed on under-the-bonnet vehicle service and repair. It now has 400 stores, but it also has more than 600 garages under its stewardship.
Halfords has completely transformed itself into the nation’s trusted retailer for both motorists and cyclists and the UK’s leading provider of automotive services. Its infrastructure now boasts a physical estate of retail stores, autocentres, and warehouse and logistics locations combined with a best-in-class web platform and efficient distribution network to service a highly responsive omni-channel business.
With a strong balance sheet, Halfords has been able to continue its investment in the appropriate systems, capabilities, and people to ensure future growth with a focus on training and accreditation. This includes an autocentre focus on the next generation of repair of electric and hybrid vehicles as the nation weans itself off fossil fuel by 2030.
However, this growth has not come without challenge as the business has moved to integrate the new offerings into the wider Halfords family. More physical locations mean more SKUs and more risk exposure. “When a business diversifies rapidly like this, how do you manage risks?” asks Matt Laycock, group head of profit protection.
“When I began my role at Halfords, there were over 400 stores and 240 autocentres. Now we have 400 stores but 600-plus garages as well as the tyre wholesalers all requiring specific attention,” he said.
The focus on colleague awareness is particularly important in profit protection where Halfords needs to manage an increasingly wide product portfolio and colleagues are required to have extensive attention to detail when it comes to every bulb, battery, and bike part, a lesson it learned during the pandemic when its “dark store” model was open for business to help keep the UK mobile, and stock rotation was an ever-moving component in a well-oiled machine.
3 to Protect (3TP) Model
Although a different cultural working model to retail, Matt and his team are now in the process of applying the 3 to Protect (3TP) model—a daily process and loss compliance tool it introduced into retail stores during the pandemic—across the garage estate.
The concept, which has been in the retail stores for more than two years, is a proactive tool that democratises the risk process by empowering managers to gain insight into what is driving losses and do something about it rather than reactively trying to manage shrink in the business. The concept evolved from two members of Matt’s team—James Crowther in the support centre team and David Barr in the retail field team—collaborating effectively at the beginning of the pandemic and finding ways to measure and improve compliance when they couldn’t visit stores.
The concept begins from the perspective of process compliance and the important position of trying to ensure stock file accuracy through a simple three stage process, a holy trinity of mapping stock receipts, conducting regular stock file audits, and regularly checking till routines for variances and discrepancies.
In graphical terms, the one, two, three of 3 to Protect looks like the following.
1. Goods receipting, including:
Accurate stock booking in, transfers between stores and returns to DCs
Protecting higher risk product—securing in cabinets, tagging
2. Stock file routines, including:
Customer order management
Warranty products and store consumables
3. EPOS routines, including:
Till and safe reconciliation
Reviews of refunds, cash losses, price adjustments
Processing of customer returns
“3TP has been in the retail setting for two years where it has now matured. We are now introducing it into the garage business. In time, we will have a version of the 3TP model across all the Halfords Opcos (operating companies),” said Matt, who joined Halfords from B&Q in 2014.
When it was introduced into retail, losses still occurred, but this was more down to teething troubles than any malicious intent, and Matt expects a similar journey this time around, albeit he is already well advanced in introducing the necessary cultural shift into these new areas.
The model is simple in that it introduces three key areas of focus with a “one-way” process that is designed to support teams in keeping their stock file accurate and their stores profitable.
The teams, who all undergo the 3TP training, gain clarity through the need to conduct the three simple checks each week to create a “rhythm and routine” as to the timing and report completion so that it is soon clear to all stakeholders where the risk lies.
By following the process, they gain the insight and confidence to be able to quickly health check the weekly mandate in order to accurately measure on-shelf availability to help drive sales both online and in-store. Timing being everything, the swifter completion of the process also helps improve click-and-collect rates to within one hour of the online order being placed, so it is not simply a shrink management tool but also a sales enabler.
In addition, the 3TP process leads to a significant reduction in losses through improved stocktake results and cash controls, and a drop in theft through more focus and consistent product protection. The training and awareness of more store colleagues also creates greater store efficiencies, primarily saving time through getting it right in the first instance and not having to spend hours resolving errors.
Maintaining the focus is key to 3TP’s success and each week the businesses will receive a dashboard that highlights whether the key processes have taken place and which areas of the business need attention. All these benefits also help free up the store manager to spend more time reviewing and improving results.
The dashboard provides a summary of the nine key loss areas covered by 3TP and a total loss metric that highlights the variance to the store budget.
The 3TP impact on Halfords’ retail business has delivered some transformational results with 99 per cent of stores having completed the weekly sign off on time and over 90 per cent having completed the full “off sale” check each week—the highest level ever recorded. In addition, over 96 per cent of stores have completed the weekly cash reconciliation processes each week and outstanding inter-branch transfers have been reduced by 42 per cent.
The regular checks have also reduced customer orders over seven days past their collection date by 41 per cent.
Losses have also been reduced because of the store adoption of 3TP. Stock loss variation for forecast was improved by 35 per cent. There were also big wins for price adjustment variation to forecast that came in at a staggering 257 per cent improvement, and petty cash discrepancies were also reduced by 80 per cent.
Risk Rating and Store Ranking
Based on the data feedback, each store receives a risk rating and store ranking, meaning that the more processes that are not completed combined with stock file errors leads to the unenviable high-risk status.
“During COVID, we had to re-invent the processes in-store—we needed to put the basics back into place,” said Matt. “The colleagues needed to understand the need to follow a process and why, for example, it was important to conduct shelf gapping checks or, rather, understand the consequences of not doing them.
“Our job became more about dealing with the behavioural change than the actual losses. There was a clarity with 3TP in that after the training, they understood what they needed to do for a multitude of reasons, not least the efficiencies of getting it right the first time so there was no need for lengthy post-event investigations,” he explained.
“Getting this right freed up the store managers’ time so that they could do their day job because they could see that the team was carrying out the reporting.
“Likewise, we could see which stores had conducted their checks. Everyone from the store manager to the area manager could view the insights—there was nowhere to hide.
“3TP has been a success across our stores, and I am optimistic it will be a benefit to the expanding garage business, which has, of course, presented a very different backdrop to my world,” said Matt.
The 3TP model is robust enough to work in all environments whether it’s a garage or an auto parts warehouse that distributes thousands of components across the network. Total transparency of stock files and till reconciliation forms are part of the daily routine where regular, mandated checking eliminates the need to remedy irregular errors.
“It is a simple and transformational model that helps store managers move away from a reactive position to a proactive approach where they are in control of reducing losses,” Matt added.
As a specialist in mobility, whether it is automotive, cycling, or the new generation of e-scooters, Halfords is a business in flux and transition that, like its market, refuses to stand still. As a business specialising in moving parts, it is itself constantly moving, evolving, and transforming.