|The economy is a major influence on consumer spending. Trends in employment, inflation, taxation, consumer debt levels, weather and interest rates impact consumer expenditure in discretionary areas. Changes in Government policies (e.g: Cycle2Work, DAB switchover) may also affect our consumers' ability to benefit from our products and services.|
The Group mitigates these risks by focusing on maintaining the "defensive" characteristics of its "needs driven" product groups and by ensuring that its stores and centres are the key destination for its core products and services. We also ensure that we have representation with Governmental decision-makers in the areas supporting our core categories.
The aim of the Group's business strategy is to deliver long-term value to our shareholders. The Board understands that if the strategy and vision are inappropriately formulated and communicated and if the necessary resources are not put in place then the business will suffer.
The budgetary and planning process aims to deliver the Group's growth targets and business plans are developed to ensure these targets are achieved and that they are resourced appropriately. Regular access to industry experts and monitoring of performance against plan is carried out by both the Executive managers of the Company and the Board to ensure targets are being achieved and that they remain relevant to and focused on the Group Strategy.
The retail industry is highly competitive and dynamic. The Group competes with a wide variety of retailers of varying sizes and faces competition from UK retailers, in both stores and online, as well as international operators. The Car Servicing market is a service-based market with a number of different-sized providers where "Trust" is extremely important to customers. Failure to compete with competitors on areas including price, product range, quality, service and "trustworthiness" could have an adverse effect on the Group's financial results.
The Board is aware of the risks faced from UK retailers, both in-store and online, and from the national car-servicing network and seeks to continually strengthen its "own-brand" and "sub-brand" retail offer and develop opportunities to differentiate the Halfords offer and deliver an honest and trustworthy service. Our Click with the Digital Future initiative will provide an improved multichannel experience.
The Group operates in an environment governed by legislation, standards and codes in areas including, but not limited to, trading, advertising, product quality, health and safety, hazardous substances and data protection.
The Group has a Quality Assurance and Commercial Regulatory team that manage legal and regulatory control processes both in-house and externally to advise and take action on existing and emerging risk management issues. Our various Codes of Practice regulate our behaviour in our dealings with all stakeholders including customers, suppliers and colleagues and our attitudes toward such areas as the environment and ethical trading.
Changing Customer Preferences
Some of the products that Halfords sells, particularly in the Car Enhancement category, are subject to rapidly changing consumer preferences. Products such as children's cycles face competition from alternative products (such as games consoles) and some of the products that the Group sells are non-discretionary in their nature and predicting future trends is difficult.
Halfords has recruited experienced, knowledgeable colleagues who can identify and interpret trends and consequently respond in a timely manner to changes in consumer preferences. Colleagues also monitor developments in alternative products and our forecasts reflect the latest assumption in these areas. We are continually looking at ways of moving into new merchandising opportunities to mitigate technology changes and to improve forecasting and planning to ensure we meet our customers' changing needs. Our H Factor initiative will improve product development and design.
The Halfords name is a key asset of the business and as the largest operator in its markets, expectations of the Group are high. Failure to protect the Group's reputation and brand could lead to a loss of trust and confidence. This could result in a decline in the customer base and affect the ability to recruit and retain good people.
Ultimately the protection of Halfords' brand and position in its core markets will be sustained by unique and extensive product offerings and a multichannel approach to sales in our stores and a high-service-based customer proposition in our stores and autocentres. This is complemented by training from Cytech (Cycles), RoSPA, and the Institute of Motor Industries, ensuring that colleagues at both stores and centres are capable of supporting the Halfords brand. Training will be further enhanced by our Service Revolution initiative.
Reliance on Foreign Manufacturers
Halfords sources a significant proportion of the merchandise it sells in its stores from outside of the UK, either directly or via third-party suppliers. Consequently, the Group is subject to the risks associated with international trade (particularly those which are common in the import of goods from developing countries) including, but not limited to, inflation, currency fluctuation, the imposition of taxes or other charges on imports, the exposure to different legal standards, the burden of complying with a variety of foreign laws and changing foreign government policies and natural disasters.
Extensive research is conducted into quality and ethics before the Group procures products from any new country or supplier. The Group's strong management team in the Far East has been recruited locally and understands the local culture, market regulations and risks and we maintain very close relationships with both our suppliers and shippers to ensure that disruption to production and supply are managed appropriately.
Product and Service Quality
The Board recognises that the quality and safety of both our products and services in our stores and autocentres is of critical importance to us and that any major failure will affect consumer confidence. We recognise that if our products are seen to be or perceived to be of poor standard or of poor value for money then customers will look to obtain these from our competitors. There is also the risk that our service proposition fails due to inconsistent levels of service at individual stores and individual centres, or through unavailability of stock as a result of disruption to the supply chain (e.g: unavailability of a distribution centre).
The Group constantly seeks to enhance its position as the store or centre of first choice in each of the markets that it serves. Halfords continues to invest in both its existing estate to ensure that it remains contemporary and in constant product innovation to meet customer needs. In addition, the Group's market leading in-store wefit proposition provides a range of services at a lower cost to our customers than that provided by competitors. Our Autocentre business continually seeks to provide innovative solutions for their customers, such as brakes4life. We also have an established training infrastructure to ensure that our colleagues receive ongoing product and service training this will be enhanced by our Service Revolution initiative. In our centres the training of our technicians to provide high quality motor vehicle repairs is enhanced through an apprenticeship programme and accredited Automotive Technician training. Sixty per cent of our centres workshop colleagues hold a Motor Industry qualification. Repairs are subject to extensive quality assurance processes. The business has developed and tested continuity plans.
Information Technology ("IT") Systems and Infrastructure
In common with most businesses, Halfords is dependent on the reliability and suitability of a number of important IT systems where any sustained performance problems, particularly with regard to stores, centres or warehouse, multichannel and distribution systems, could potentially compromise our operational capability for a period of time. With ambitious growth plans for our multichannel offer, our trading capacity could be affected by internal and external systems' resilience and interdependencies.
Extensive controls are in place to maintain the integrity of our systems and to ensure that systems changes are implemented in a controlled manner. Halfords' key trading systems are hosted within a secure data centre operated by a specialist company remote from our Support Centre. These systems are also supported by a number of disaster recovery arrangements including a comprehensive backup strategy, and a hotlink secure data centre hosted outside the UK, with additional access to a further data support centre elsewhere in the UK in case of a major incident. We have recently recruited an IT Director to oversee enhancements to our IT infrastructure.
Dependence on Key Management Personnel
The success of the Group's business depends upon its senior management closely supervising all aspects of its business, in particular, the operation of the stores and autocentres, including the appropriate training of in-store and centre colleagues, and the design, procurement and allocation of merchandise.
Our Remuneration Policy details the strategies in place to ensure that high calibre Executives are attracted and retained. The Group looks to improve its senior manager cadre through operating a talent management process to help individuals achieve their full potential within Halfords and to ensure that appropriate succession plans are in place to meet the future needs of the business. At a junior level the Group continues to invest in graduate programmes and store/centre colleague training and development.