Some of Halford’s bike trade suppliers were at this weekend’s Bike Show at the NEC. Most were angry after receiving the 90-day terms letter from Halfords, some were threatening to refer the move to the Office of Fair Trading.
The letter is thought to be brainchild of new chairman Rob Templeman, formerly the CEO of Homebase. Templeman was recently appointed by CVC, Halfords owner since late last year. While in charge at Homebase he made a similar move to get a grip on supplier’s payment terms and he also ‘rationalised’ the number of suppliers.
He improved Homebase’s trading profits and, in a flat market, is looking to gain margin for Halfords by squeezing suppliers.
As was reported on this site a few weeks ago, it’s believed by analysts that CVC is fattening up Halfords for a quick sale.
Bike sales right now are bouyant for the 400-store chain, but this is on the back of nigh on six weeks of fabulous spring weather when most IBDs are also reporting excellent year-on-year sales.
The new, 90-day payment terms (the clock only sytarts ticking a month after the invoice is raised so the terms could be closer to 120-days!) come into force on May 1st. But many suppliers are looking to put up a fight. A top exec at one of Halford’s biggest P&A suppliers, and a very strong player in the IBD sector too, told BikeBiz.co.uk his company had not yet formalised a response to Halfords’ unilateral decision to alter the contract of supply but would "not be taking the matter lying down."
The exec said: "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?"
A bike supplier to Halfords said: "I’m furious. As far as we’re concerned this would be going back on our original contract and we won’t play ball. Why is the new team so unhappy with the deals brokered by their buyers? Maybe the buyers should be sacked if they did such a bad job."
Halfords has 400+ suppliers, automotive and bicycle. A UK-based dog blanket manufacturer didn’t just get the 90-day terms letter, he was also asked to cut his costs by 10 percent. Most bike suppliers have been asked to swallow 2.5 percent margin cuts.
Some want to refuse to sign the new terms and then sue Halfords for breach of contract. One bike supplier, different to the one abobe but also wishing to stay anonymous, said:
"With product being shipped from the Far East and what amounts to 120 day payment terms, we’re effectively financing [Halfords] stock for nearly a year. This will weaken those suppliers who decide to agree to the new terms. We’d have to go back to our bank and extend our overdrafts. This may be good business for Halfords but it’s not very clever long-term to muck suppliers about like this."
There’s a lot of cost-cutting within the store chain too, with marketing and promotion being severely hit. From seventeen PR and advertising posts there are now just seven left.
News of 85 HQ redundancies were carried on this site last month but on top of this many other HQ employees were put into a redundancy consultation process. The uncertainty ended last Wednesday but more jobs went out of the window.
Many bike trade suppliers which deal with both Halfords and the IBD sector are now said to be looking at the low-profit-but-high-turnover deals with Halfords and wondering whether it’s worth all the hassle?
In the world of DIY, there are very few independents left. In the bike world, IBDs still play a very important part. Execs with experience in Homebase and other mainstream retail sectors may think they can impose their business templates on the bike trade, but, believe bike analysts, the wealthy, retail-savvy execs may find it’s more of an idiosyncratic industry than they ever imagined…