Car service and repair retailer Halfords has announced it may be forced to increase costs at its garages after new price hikes were announced by Chancellor Rachel Reeves in the Autumn Budget.
The new Budget measures would raise the company's wage costs by £23million with the retailer warning that the impact of higher national insurance contributions and minimum wage increases will hit the business particularly hard.
The company said it expects to pass on these increased costs more readily through its Autocentres division, where most revenue comes from services including MOT checks and car inspections.
Only £9million of the additional costs were included in Halfords' plans for 2025-26 and had been mitigated, the group warned.
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Halfords offers a range of services for motorists
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The cost implications are particularly significant due to Halfords' large workforce of over 12,000 employees. The company noted that many of its retail product categories are discretionary or big-ticket items, making it harder to absorb the costs in that division.
"We anticipate being able to pass through wage inflation more easily in the Autocentres business, where a greater proportion of revenue relates to services," the company stated.
The retailer acknowledged that fully offsetting such a significant cost increase in a single year would be particularly challenging with urgent support needed from the Government.
The retailer has specifically called for reforms to the Apprenticeship Levy as a way to offset some of the financial impact.
Graham Stapleton, chief executive of Halfords, highlighted the unique challenges facing the company as well as outlining what the next steps need to be.
He said: "The cost implications from the recent UK Budget are particularly acute for a specialist retailer that provides expert advice and assistance to customers, face to face.
“While we will work hard to mitigate these costs, we urge the Government to consider alternative ways of supporting businesses like ours, including the acceleration of Apprenticeship Levy reform, which would help us to upskill existing colleagues and offset some of the new headwinds.”
Stapleton also warned that the financial context for the price increases unveiled at the Budget comes as Halfords reported a significant drop in profits.
The company's pre-tax profits fell 23.3 per cent to £17.8million in the six months to September 27 while overall revenues declined by 0.1 per cent during this period.
The profit decline was driven by more challenging retail trading conditions, though this was partially offset by growth in the Autocentres division. On an underlying basis, profits showed a smaller decrease of 1.4 per cent, reaching £21million.
Despite these challenges, Halfords maintained its full-year guidance.However, the company expressed caution about an uncertain trading outlook following the Budget.The retailer also warned of additional costs in the second half of the year with expenses coming from increased shipping costs.
The company will also face costs from temporary garage closures, which it said were necessary as it upgrades sites to implement its new Fusion Motoring Services concept.
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The retailer called on the Government for more support including reforms to the Apprenticeship Levy
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The combination of Budget-related cost increases and operational changes presents significant challenges for the company going forward.
