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Thursday, December 15, 2011

Cambodia is the new China for Halfords

By Enda Mullen
China is no longer the automatic go-to country for manufacturing with the emerging economies of tomorrow offering better value, according to the boss of one of the Midlands’ best known companies.

Halfords chief executive David Wild said the company was seeking out new manufacturers across the globe in countries such as Cambodia as it strove to retain a competitive edge.

Mr Wild revealed the South East Asian country had emerged as an unlikely supplier for bicycles in a supply chain that is rapidly changing and evolving and believes it offers a real alternative to the Chinese option.

“As these markets mature labour costs increase,” he said. “If we want to stay price competitive we also have to be trying to find new manufacturing sources.

“We are now buying bikes from Cambodia, which is a lower duty area and therefore has lower costs.

“We have to go to new sources and have found a supplier that provides excellent value and we pass that on to the customer. You have to work much harder to find the cheapest sources.”

But it is not a case of the company turning its back on China, with Halfords having recently opened an office in Shanghai to target new manufacturing areas of the country and Mr Wild continues to see the country as a major supply source.

“We have set up an office in Shanghai to look at the whole of China and see there are areas that offer lower production costs,” he added.

“The south east seaboard of China was the traditional production area and most of the buying offices were in Hong Kong. More and more production is spreading to other parts and Shanghai is an important buying area for us.”

The Cambodian connection came about more by chance than by design, according to Mr Wild, with Halfords taking a proactive role as it developed.

“We go to fairs two or three times a year where all the cycle producers exhibit,” he said. “At one we met someone who was actually producing in Taiwan. He found it increasingly expensive and said he was thinking of opening a factory in Cambodia.

“We looked at the bikes and the guy clearly knew what he was doing.

“Cambodia offered cheap labour costs and duty rates, so we said if you want to build a factory there we will provide some technical help regarding the bikes we want.

“We started buying bikes two years ago, in relatively small volumes at first but it has got bigger over time.

“It’s an example of finding the right partner, supporting them with our technical help and moving to a significant level of production.”

Importantly, Cambodia could be just the first step of many and Mr Wild revealed it is not the only new country it is exploring opportunities in.

“We’re not talking about it publicly but we are already looking at where we can go next,” he said.

The Halfords chief remains cautious about dealing with the downturn but believes providing customers with services and products they need and want at the right price remains key, particularly in relation to car servicing at its Nationwide Autocentres chain.

“The recovery profile is looking to be a long one so what customers are doing is recognising things are not going to get any better so they are changing their behaviour,” he said. “Customers are much more price conscious when servicing their car and our autocentres business has been doing well.

“Our position is that most customers feel main dealerships do a very good job but they pay a very high price. They are happy with the quality of work but feel they are paying too high a price. Independents are much more flexible, much more responsive and you can usually get your car in more quickly. But customers need to feel more comfortable with an independent as regards the same quality of work and trustworthiness.

“We are delivering a balance, the quality of work of a main dealer with a brand that is trusted and the same price you pay at an independent.”

There are also plans for growth of the Nationwide Autocentres business. When Halfords bought it last year there were 223 servicing outlets, a figure that has since grown to 247, and Mr Wild said he believes there is room for 400 or more with plans to grow the business by around 30 outlets a year.

Bicycles also continue to be a growth area for Halfords, as does its online retailing operation, though Mr Wild feels its ‘reserve and select’ model where people browse online but go to a store to confirm their purchase is in line with what customers want.

“It’s a very powerful combination,” he said. “People talk about multi-channel retailing and Halfords is one of the best in the UK at doing that.

“They research online and buy online but come to the store to get added value. In most cases don’t take money off customer until they come to the store, to give them a chance to be completely satisfied before parting with their money.”

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