More than £120m was wiped off the value of the Halfords bikes and car maintenance chain on Thursday after the retailer issued its second profits warning in a year, blaming mild weather and lower consumer confidence for a fall in sales.
The company’s shares slumped by more than 20%, to a six-year low of 217p, as the retailer said that its profits would be only around £60m this year, rather than the £70m City retail analysts had expected.
Halfords added it was unlikely to be able to increase profits next year as it predicted consumer confidence would remain weak.
What’s the problem?
Physical retailers have been hit by a combination of changing habits, rising costs and broader economic problems as well as the coronavirus pandemic. In the past few years names such as Mothercare, Karen Millen, Toys R Us, Maplin and Poundworld have disappeared from the UK high street as a result.
In terms of habits, shoppers are switching to buying online. Companies such as Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores.
At the same time, there is a move away from buying "stuff" as more people live in smaller homes and rent rather than buy. Uncertainty about the economy has also slowed the housing market and linked makeovers of homes. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit and the coronavirus, have coincided with economic and political uncertainty that has dampened consumer confidence.
What help do retailers need?
Retailers with a high street presence want the government to change business rates to even up the tax burden with online players and to adapt more quickly to the rapidly changing market. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges, which they say put off shoppers. Many businesses which deal with complex supply chains also want additional help with the new red tape and import charges imposed after Boris Johnson's Brexit deal saddled them with extra costs.
What is the government doing?
In the December 2019 Queen's speech, the government announced plans for further reform of business rates including more frequent revaluations and increasing the discount for small retailers, pubs, cinemas and music venues to 50% from one-third. It has also set up a £675m "future high streets fund" under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
Graham Stapleton, the chief executive who took the helm in January, said: “This has been a challenging third quarter for the business, driven by exceptionally mild weather and ongoing weak consumer confidence.”
Halfords has been hit as shoppers rein in on non-essentials as they worry about their finances during an uncertain political and economic time.
The cycle market is also facing fierce price competition, particularly from the fast-growing online sports retailer Wiggle.
Evans Cycles fell into administration in October after several years in the red. The chain was bought out by Sports Direct which has warned it may have to close half Evans’ 62 stores.
Sales at Halfords’ established retail stores slid 2.2% in the 14 weeks to 4 January, led by a 3.4% slump in sales of car accessories and maintenance products, as mild weather meant drivers did not need as much de-icer or new windscreen wipers.
Cycle sales slipped by 0.3%, as growth in children’s bikes was offset by a fall in more expensive adult bicycles.
Halfords’ latest profit warning comes after it announced last May that profits would only be flat on the previous year. It then said in September that its profits would not rise in 2020 because of the need to improve its stores under a “back to basics” plan to move away from camping and power tools to focus on bikes and vehicles.
