The ACT condemns Halfords
Posted on in Cycles News
The Association of Cycle Traders (ACT), representing independent cycle retailers and their supply partners throughout the UK, has condemned Halfords' actions to seek ‘investments' from its suppliers running into millions of pounds.
At the beginning of May c.95% of Halfords suppliers were approached with an investment opportunity to ‘continue this journey together'. The communications from Halfords Commercial Director included an individual investment proposal for each supplier.
Some individual ‘investment opportunities' ran into several hundreds of thousands of pounds. It's thought that the investments are based upon up to 10% of a supplier's turnover with Halfords. Strangely, the figures are odd amounts as if taken directly from a spreadsheet calculation.
ACT members were stunned by the communications, which offered just 1 week for the suppliers to ‘confirm this investment opportunity'. One supplier told the ACT they thought it must have been a late April Fools prank.
The ACT anonymously received a copy of the letter and suppliers the Association contacted have asked to remain anonymous for fear of damage to their ongoing business. Some say they feel obliged to pay it, irrespective of the amounts and lack of any justification or value offered.
The letters promote that customers are at the heart of Halfords business, plans and decision making, stating that price, quality, range and ‘service that wows' are at the very core of the business strategy which will be news to many cyclists throughout the UK.
The letter addresses the recipients as valued partners and talks of a ‘strategy of growing sales and positively building our respective businesses for the longer term'. Some suppliers appear to feel somewhat differently about their relationship with Halfords.
Although the letters ask for large investments they don't make clear if Halfords are proposing a formal agreement whereby in exchange for the money they are guaranteeing to stand by the supplier for a given period and buy a guaranteed amount of product. Suppliers the ACT has spoken to are sceptical that this is the case.
This is not the first time that Halfords have sought support from further up the supply chain. In 2006 it was reported that Halfords suppliers had received new "trading requirements" in return for "continued investment". The trading requirements reportedly required extended payment periods, price cuts and advertising investment.
In 2003 Halfords announced to suppliers that it would be reducing its supply base and suggested suppliers "consider opportunities to reduce costs through supply chain, packaging, promotions etc." Halfords reportedly gave 7 working days' notice before the new contract came into effect, tripling payment terms and impacting pricing.
Despite wide-scale press hype about the growth of cycling in the UK cycle sales have in fact been decreasing and the retail trade - still dominated by independents in the UK - has come under increasing pressure from internet sales erosion, margin reductions and the continual increase in retail operating overheads.
In late 2013 Halfords re-focused upon branded cycling products, supported by a more aggressive pricing policy. Some of the brands involved might now be re-evaluating the overall cost of supporting this strategy.
Chris Compton, ACT Director and proprietor of Compton Cycles in South East London said "Halfords will be referred to the Competition and Markets Authority for this practice. They already benefit from preferential pricing and beneficial terms, plus the obvious efficiencies of size and scale. They are far larger than their UK suppliers and draining more cash out of the supply chain will simply choke the industry. I am astounded and dismayed by these bully boy tactics to leverage better margins from their hard pressed suppliers via a ‘voluntary contribution' to direct significant investment into what is already the dominant corporate in UK cycle retailing."
"As an independent retailer I realise that margins are tight in all aspects of the supply chain, so any contribution that goes towards the growth of Halfords will be at the expense of the grassroots independent trade. I urge suppliers to resist this ‘opportunity' and look to a sustainable future in partnership with the independent sector".
The Forum of Private Business stated that Halfords demands were among the most severe they had seen according to the Telegraph.
Read more on this story: Halfords "not a charity"