Happy New Year from Halfords - BikeBiz

Happy New Year from Halfords

Suppliers who fail to adhere to Halfords' latest "conditions of trading" risk being dropped from the 402-store chain. In a five-page letter obtained by BikeBiz.com, the Halfords director of trading wants deeper discounts and other concessions "to reduce the risk of late, and or emotional decisions that can leave both our companies exposed."
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Halfords used similar strong-arm tactics in 2003, imposing 90-day payment terms when the payment contract had previously been for 30-day terms. This was a well-worn ploy of Rob Templeman and Chris Woodhouse, the two millionaire execs who were parachuted in to Halfords by then owner CVC Partners.

At the time, a top exec at one of Halford's biggest bicycle accessory suppliers told BikeBiz.com: "This is unacceptable behaviour for a dominant player. It is bad news all round. Halfords has previously been a progressive force [in the UK bike trade]. It has defended decent profit margins. Now, who knows what's going to happen?"

Fast forward to November 18th and a letter to bike and auto suppliers from Paul McClenaghan, Halfords' director of trading. He wants to see additional 5 percent year on year discounts not as a guarantee of fatter profits for the retailer but as a reinvestment "in your product categories and markets."

Sweetening the pill, he said: "We are planning to invest even more money in portfolio, merchandise and advertising during 2006."

He said these measures will be paid for by suppliers. The reinvestment "can only be fully achieved with your continued support" and he supplied four pages of new "trading requirements."

McClenaghan said "I believe that by writing to you now with our requirements for 2006/2007, I have allowed us both time to find ways to achieve the conditions required to secure the attached requests."

Requests? Or cast-iron stipulations?

"My buyers are crystal clear on these requirements that will form part (not all) of their ranging criteria next year."

Key bike suppliers to Halfords see this as a thinly-veiled threat: swallow the "requirements" or forget being a supplier to Halfords next year.

Trading terms will be finalised by the end of January, said McClenaghan, "this will enable us to focus fully on our business plans without any noise or uncertainty."

Halfords wants suppliers to adhere to eight new golden rules: customer satisfaction, channel management, exclusives, advertising, life cycle management, cost price, cash flow and supply chain.

In the channel management appendix, McClenaghan said "we have both suffered this year through channel activity," citing sales via "Mass Merchants, Internet sites, Independent Specialists."

Halfords' "innovation and brand equity" is "undermined by retailers who trade solely on price," said McClenaghan.

He said he "would like to understand your plans to support Halfords to retain our margins against this difficult backdrop."

McClenaghan also wants more exclusive products for Halfords, with no competition from other retailers but "the value of exclusive product is only optimised when the offering is unique with a true specification difference at the same cost as the market model."

Candidly, he added: "Colour or design difference is of little interest to Halfords."

Suppliers who stump up cash to help pay for TV and print ads will be favoured over those who don't:

"I am looking for additional support for Halfords advertising for 2006/2007 and I request that support is committed prior to any purchasing agreements," said McClenaghan.

"I will be instructing my buyers to take advertising commitments into account as part of next years ranging decision."

It's not until appendix six that McClenaghan raises the spectre of deep and damaging cost reductions from suppliers already giving preferential, volume rates to Halfords:

"I request an additional YOY 5 % cost reduction across your product range," demands McClenaghan, slipping in the fact he also wants a "turnover retro of an additional YOY 2.5 % based on value."

Yesterday, Halfords reported a 21 percent rise in first year profits. Go figure.

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