Putting Customers in the Driving Seat

Over the course of the financial year we have been rapidly improving our customer data knowledge and capability.

We continue to collect customer email addresses across our Retail stores. We have gathered around 5.3m email addresses within our Retail stores over the last 18 months. The majority of these customers are new contacts to our database.

We can now match 46% of Retail sales to customers, up from 3% as of November 2015. We completed the first phase of our 'single customer view' project, joining up 15 different databases. Across the Group we can now match 59% of sales to customers. Investment in customer data has allowed us to move from generic email marketing to a more personalised approach, which in turn is driving incremental revenue and awareness of our services. A few examples include:

• We have added detailed individualised data into our group single customer view, which has informed the timing, content, frequency and channel of all communications to customers, based on the preferences we infer from their behaviour (for example, a family cyclist will see different communications to a camping enthusiast);
• Over winter we targeted customers on their mobiles with bulbs, blades and batteries messages based on the age of their car obtained from the DVLA, their proximity to store through their mobile phone data and the local weather from the Met Office; and
• We sent geo-targeted messages to customers who live, work or shop in the location of our new store in Sutton Coldfield to share with them a virtual tour of the revamped store, emailing customers who used to shop in the old store to let them know the new one was opening. This will be replicated for upcoming store refreshes across the estate.

As a result of these initiatives, we have seen email traffic in FY17 up 49% against the prior year, with an incremental 1.2m visits to the website. Overall, sales attributed to email campaigns were up 19%, and open rates were up from 15% to 21%, on average.

We launched our new brand positioning in June 2016, under the strapline of Halfords - For Life's Journeys. The new campaign is helping to drive a clearer understanding of Halfords' offer, particularly amongst younger customers. We have improved the richness of online content, with more videos and "how to" guides, reinforcing our service credentials online as well as in shops.

Looking ahead to FY18, we will focus on enhancing some key initiatives, such as smarter search and guided selling functions, to continually improve our personalisation, relevance and to drive greater incremental sales.

Service in Our DNA

We have a menu of over 30 in-store services across Motoring and Cycling, which are key to our uniqueness as a service-led, specialist retailer, driving our distinct competitive advantage.

We introduced two new motoring services in the year: windscreen chip repair and motorcycle bulb and battery fitting which are both growing strongly.

We also introduced new services in cycling, such as bike sizing using 'Smartfit' technology in our recently refreshed concept stores, as well as slime puncture proofing. We will be launching many more in-store services across both Motoring and Cycling in the months ahead.

We remain focused on growing the important metric of service-related sales, which we aim to grow faster than overall sales; in FY17 we achieved LFL growth of 11.1%. We completed nearly 5 million fitting services during the year, which equates to over 10,000 services per Retail store. There remains an opportunity to grow our service-related sales through increasing customer awareness of our services, as well as harnessing the trend away from 'do it yourself' to 'do it for me'.

We have updated our net promoter score methodology with a new programme of customer experience measurements in shops, weighted according to what matters most to customers. We have opened up more channels for customers to give us their feedback, including exit interviews as customers leave the store, carried out by an external third party and direct links to e-receipts.

We remain committed to the 3-Gears training programme; nearly 100% of eligible colleagues are at Gear 1, around 70% of colleagues had qualified for Gear 2 by the end of FY17 and we also now have circa 10% of colleagues trained to Gear 3 "guru" level, which is in line with our target proportions. Going forward we will continually refresh existing colleagues' training and also develop new colleagues.

Our Retail apprenticeship scheme remains popular and we have now placed over 40 trainees into permanent roles across our stores. We continued to build our pipeline of Assistant Store Managers and Store Managers through our Aspire programme; in FY17 we filled 48% of store management vacancies internally.

Retail colleague turnover has further improved during the year to record lows and is now circa 33% which will deliver long term benefits for the business. We were also pleased to once again be included within the Sunday Times Best Big Companies to Work For list, moving up to 13th place from 18th place last year.

As of April 2016 we introduced the National Living Wage for our colleagues aged 25 and over, and at the same time introduced our 20p supplement for all colleagues upon qualifying for Gear 1. This, combined with other changes to our pay structures, lifted the pay of all colleagues of the Halfords Group to above the minimum wage.

Building on Our Uniqueness

Exclusive products, relevant innovation and unique partnerships all strengthen our clear differentiation as a retailer.

During the year we introduced the following new initiatives and products:

• Launched a new range of mainstream adult Carrera and Apollo bikes, alongside a new and exclusive Wiggins range;
• Developed our capability of being a market-leading fitter of dash cams, differentiating us from online or generalist retailers;
• Launched our "safer seat" campaign helping customers to fit their child car seats with greater peace of mind;
• Enhanced our range of PACs for the Boardman brand, which won Best Bike brand in the prestigious BikeBiz 2017 awards, together with a host of other coveted industry awards;
• Launched an exclusive range of Orla Kiely camping and travel accessories; and
• Expanded our range of motorcycling parts and accessories.

Tradecard sales grew 14.6% in the year, supported by an enhanced central support team and from the enabling of cards to be used online for the first time.

Looking ahead to FY18 we have recently enhanced our range of e-bikes, a fast-growing segment of the cycling market, with an increased range of new own-brand e-bikes which have been rolled-out to almost all retail stores from around 120, since the start of April 2017. We will also be building our Boardman Performance Centre, due to open in 2018. This will be a revolutionary cycling research and development centre, including a wind tunnel and physiological testing and also provide access to the growing ranks of enthusiasts to test their capability alongside experts.

From a services perspective, in Motoring we will be launching an ad-blue top-up service and car key fob repair, which will both complement and enhance our existing offering.

Better Shopping Experience

During the year we evolved our Retail store refresh concept, opening the first of these in Derby in November 2016 and subsequently opening four more by the end of the financial year.

The previous store programme had been successful, delivering good sales uplifts, and therefore did not require fundamental changes.

However, we have updated the concept to reflect the Moving Up A Gear strategy and to incorporate advances in our customer insight and technological capabilities. The differences to the previous store refresh format include:

• Enhancements to reflect our growing service proposition, including customer waiting areas with coffee machines and more prominence placed on in-store services to raise awareness;
• Technological enhancements, including digital imaging bike fitting, dedicated hubs for service, technology, click & collect;
• Colleague headsets to enable better communication between colleagues supporting better customer service;
• A shop-in-shop feel with clear differences between the Motoring and Cycling sections; and
• New brand positioning internally and externally.

Early signs are very encouraging, both in terms of customer response and sales uplifts; the latter running at higher levels than achieved in the early days of the previous store refresh iteration. The priority for our first store in Derby was to establish a basic blueprint from which to roll out at an accelerated rate in FY18. We will continually evolve the concept, learning as we go and adding new features. We will also launch a "light" version, designed to bring some of the principles to stores that do not financially justify a full refresh. In total we anticipate refreshing around 30 stores in FY18.

During the year we successfully rolled-out the use of Apple Pay and contactless card payments across the Retail estate, thereby improving the in-store shopping experience for our customers. As at March 2017, around 50% of in-store transactions were completed using one of these new methods. We are also making great progress in mobile, with traffic up 31% in the year and one in three online orders made using a mobile device this year, compared to one in four last year.

During the year we also implemented a more agile approach to web development, whereby we complemented the core digital team at our Support Centre in Redditch with a separate web development team in central London.

This enabled us to accelerate the improvement of our websites during the year through the following means:

• Deploying code changes five times more frequently than in the prior year;
• Introducing a guided selling tool, helping customers reach a purchase decision through various questions;
• Redeveloping our mobile check-out process to provide a more seamless customer journey; and
• Making a series of incremental changes to drive conversion rates across our sites.

These changes, along with completing a number of site performance enhancements, supported the development of richer online content and enabled us to maintain our group website performance through peak periods.

By the year-end, Cycle Republic reached 15 stores and represented circa 1% of Group revenue. We opened 5 new stores during the year in Purley, Birmingham, Leeds, Southampton and Edinburgh. We are encouraged by the progress, with strong double-digit LFL sales growth and a successful launch of the transactional website in August 2016. Building on this success we will continue to roll out more stores and further develop the online presence. We anticipate opening around 5 stores in FY18.

We are very pleased with the performance of Tredz during the year, as sales have grown 22.0% year-on-year in the period since acquisition.

Fit for Future Infrastructure

After a number of changes in the previous two years in our supply chain infrastructure, this year has been much more stable.

The delivery-to-store model is fully-embedded and working well, with resilient performance through the peak Black Friday and Christmas periods.

Leveraging these firm foundations we took the opportunity to review our warehousing arrangements resulting in the consolidation of a number of external storage units into a third distribution centre in Daventry, adding to our existing centres in Coventry and Redditch. This arrangement is broadly cost neutral but is more flexible and enables swifter replenishment of stores.

During the year we also joined up our stock systems, giving us a single view of stock for the first time. This enables better fulfilment of online purchases and improved availability in stores.

After a successful pilot we implemented Dayforce (our colleague resource planning system) in February and March 2017, removing eleven systems and replacing them with one tool that we now use across the Group. Colleagues and line managers can log into the system to view and change shifts, and the system enables us to better optimise scheduling of resource.

We continue to develop the i-Serve project to replace our till hardware and software. This is a major piece of IT change spanning stores and Autocentres. We are in pilot stage, including testing the mobile tablets and we anticipate rolling out to stores and Autocentres towards the end of FY18.

We remain focused on our successful We Operate For Less programme, delivering efficiency improvements. Examples of initiatives completed during the year include:

• A new stock put-away process, saving around 3 hours per store per week;
• Installing a Click & Collect cabinet at the front of shops, saving time for customers and colleagues;
• "Jade", a secure tool box positioned in the car park, saving around 2.5 hours per week for colleagues; and
• Rolling-out colleague headsets, enabling colleagues to share knowledge, free-up time and improve customer service.