Halfords: chief spokesperson

Halfords was a tired legacy retailer specialising in motoring accessories, car repairs and bicycles. The Covid-19 era has sparked an upsurge in travelling by bike. That has given the UK group a new lease of life, keeping it upright during a pandemic when motoring, its main source of profits, rolled almost to a stop.

If cycling grabs a permanently larger slice of urban transport, competition will grow too. The staid bike retailing business looks ripe for disruption.

Halfords cycling division still pedals hard, according to a trading update. Sales jumped 59 per cent on a like-for-like basis in the 20 weeks to August 21. Halfords remains the go-to shop for many cyclists, with upwards of a quarter of the market. Its 445 shops cover the whole country.

That is convenient. But Halfords’ retail model — and sometimes its service — can seem distinctly last century. One disruptive threat has come from online specialist Wiggle. This merged with rival Chain Reaction Cycles four years ago. The combined group has UK sales of over £150m, less than half that of Halfords in cycling.

Wiggle has lost money at the ebitda level for the past two years running. Another competitor, Evans Cycles, has one-tenth Halfords’ store estate and is owned by Mike Ashley’s erratic Frasers Group.

Halfords, with its big physical presence and diversified model, still looks vulnerable. With the cycle-to-work category set to expand and electric bikes gaining popularity, there should be scope for other new entrants to pose a serious challenge.

Short term, it is the motoring side of Halfords that investors will watch closely. It was down 29 per cent. The unit typically generates higher revenues and profits than cycling. This year’s altered mix suggests group gross margins will be two percentage points lower, says Investec.

There are signs motoring is chugging into action. For Halfords, life is currently more about pedal to the metal just peddling bikes. However, modern cars — including the electric kind — need ever fewer repairs. And the bikes business looks set to change.

Sign up to the City Bulletin newsletter for the latest company news. Every morning our Lombard writer Cat Rutter Pooley covers the biggest business stories and delivers them straight to your inbox.