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Profitability in Milwaukee: Dealers tough it out as market changes

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Profitability in Milwaukee: Dealers tough it out as market changes

Most of Milwaukee's breweries may be gone, but the city's independent tire dealerships continue to thrive despite a changing retail and economic landscape. Like other Rust Belt cities, Milwaukee's base economy has shifted over the years from industrial manufacturing to service at the expense of thousands of stable, blue-collar jobs. As a result, Milwaukee's already-thrifty citizens must stretch their hard-earned dollars even further which, in turn, has made it harder for dealers to win new customers and retain old ones.

And the proliferation of price clubs, mass merchandisers and company-owned tire stores in and around the city has forced dealers to work harder and smarter to preserve their existing market share. Milwaukee-area consumers now can buy tires at six Sears Auto Centers, four Sears-owned National Tire & Battery (NTB) outlets, two Farm & Fleet stores, several Sam's Club outlets and a variety of smaller operations, including numerous Goodyear Tire & Rubber Co. and Bridgestone/Firestone (BFS) Inc.-owned company shops, independent service stations and a handful of quick lubes.

To their credit, Milwaukee's independent tire dealers have found ways to adapt and succeed in the face of intensifying competition through hard work, ingenuity and -- in some cases -- sheer guts. "If you can make it here, you can make it anywhere," one shrugs.

That good-natured determination keeps this city of roughly 608,000 people rolling along. Modern Tire Dealer recently interviewed several Milwaukee-area dealers about the local tire market and how they stay ahead of the pack. Their individual experiences and strategies differ, but all share the same common denominator: profitability.

Steady as she goes

Milwaukee's economy has steadied over the past few years, according to Ray Tann Jr., owner of Ray Tann Tire Inc., a small, single-location dealership on the city's blue-collar south side. "We haven't seen a drop-off in sales but we haven't seen any big increases either."

Tann, who took the 69-year-old company's reigns from his father Ray Sr., in 1975, derives all of his income from passenger and light truck tire sales, mounting, balancing and repair. "We don't do anything mechanical at all," he says. "No oil changes, brake work, alignments -- nothing."

While Tann jokes that his shop's exclusive focus on tire work "makes us dinosaurs" in an era where automotive service is becoming a bigger part of dealers' bottom lines, long-term customer loyalty keeps the operation viable. "People like to be taken care of personally." The dealer says it's not unusual for customers to drop off their cars at his store during the night with notes taped to their windshields instructing him to mount a new set of tires the next morning.

When it comes to marketing, word-of-mouth is king on Milwaukee's rough-and-tumble south side, according to Tann. The company runs small ads in church bulletins and the Yellow Pages but shuns expensive TV and radio spots. "We've worked hard to maintain a good name in this area," he says. "But we make darn sure that we don't take advantage of that trust."

Tann's biggest challenge might be locating and keeping good employees. Though he's quick to praise his current crew, "it's tough to find guys who want to work. The work ethic isn't there like it was 20 years ago."

Another challenge is dealing with customers from different ethnic groups. Tann foresees a time when hiring multi-lingual employees will be a necessity, especially as Milwaukee's Latin-American population increases. But that decision will probably be reserved for 19-year-old son, Ray Tann III, who is being groomed to take over when Ray Jr. eventually retires.

Auto service to the rescue

Offering automotive service is a necessity for survival in the Milwaukee market, not an option, according to Bill Lau, owner of Lau's Tire & Auto Inc. on the city's northwest side. Much of that can be attributed to the influx of price clubs and mass merchandisers, he says. The city's growing number of sales points has put the squeeze on Lau's tire sales.

"We sell between 150 and 200 units a month. Years ago, we used to sell about 250 to 300 tires a month." To compensate, he markets his 28-year-old business as a complete automotive service shop, not just a tire dealership. Lau's automotive techs, most of whom have been with him for more than 15 years, "can do everything from tire mounting to computer diagnostics."

The dealer also advertises service specials through direct mailings that zero in on specific customer populations. For example, when the Firestone recall started last August, Lau purchased a list of drivers and their vehicles through the State of Wisconsin and then mailed fliers to Ford Explorer owners in his area. He also targets new people moving into the neighborhoods that surround his store in the same manner. "We have 50% to 60% success with direct mail," he says -- significantly better than other channels he has used.

Lau also has increased his tire mark-ups to stay competitive. "We used to make 17% profit on tires. Now, we have 20% to 25% margins."

Top of the line

"I don't think the price clubs have hurt us," says Dick Matschke, owner of Richlonn's Tire & Service Centers Inc., a four-store Goodyear Gemini chain based on the far south end of Milwaukee. "Our margins are lower than they were 10 years ago, but we try to sell better tires to compensate."

Matschke, who started retailing passenger and light truck tires in 1964 with now-retired partner Lonn Stone, encourages his staff to sell top-tier products by offering sizable commissions. The strategy is working. Richlonn's tire sales jumped 13.5% last year, he says, due in part to interest created by the Firestone recall. "And we're looking for increases over the next six months."

The company's total 2000 sales reached $4.5 million, 4% of which will be re-invested in advertising like direct mail and radio and TV spots. "We also follow what Goodyear is doing nationally."

Reinvestment is necessary for growth, according to Matschke; so is hiring motivated employees. "You need professional people because our customers are pretty sharp. They do their homework."

The dealership's clients span all income levels, and a rapidly growing number of them are female. "We strive to keep our stores neat and clean so women feel comfortable in them."

Matschke also bucks local trends by employing several women as tire techs and salespeople. "As a rule, they're very well-received by our customers."

Feminine mystique

Chris Gehrt, assistant manager for the Mark J. Rinderle Tire Co., says his two-store, inner-city Milwaukee-based dealership is seeing more female buyers. "When I started 15 years ago, husbands would call and say, 'I'm sending my wife down.' Now women are more aware of their tires. They're looking at the product, they're asking questions and they want explanations on things like warranties and tread wear."

Both Rinderle outlets sell passenger, light truck and medium/heavy commercial tires. The company's store in suburban Neosho, Wis., also markets farm tires. "Tires still dominate our total sales but service is becoming a bigger part of our income." In addition, custom wheels comprise a significant part of the dealership's business.

Most of Gehrt's customers are in middle-to-lower income brackets, though his techs also mount tires on "premium-dollar sports cars." Regardless of income level, "people are still looking for a good deal."

Penny pinchers

The frugality of Milwaukee consumers cannot be overstated, says Nate Elwitz, manager of one of the area's four Tires Plus stores in Waukesha, Wis., an upscale western suburb. "They'll drive 50 miles to get a deal on tires. And you have people who'll stiff you over a $1.89 disposal fee! People here are very conscientious about how they spend their money."

Elwitz's outlet mounts 350 to 400 tires a week during the peak fall season and slightly fewer during the rest of the year. "We're seeing a 5% annual increase in tire sales."

He attributes sales jumps to client retention, estimating that more than half of the store's shoppers are repeat customers. Like other Tires Plus outlets throughout the country, the Waukesha shop offers mounting, balancing, rotations, flat repairs and siping, plus free services like alignment checks and vehicle inspections. Other service options on the menu include alignment, brake, shock and strut work.

The growth of price clubs in Milwaukee has actually helped Tires Plus' business, according to Elwitz. An adjacent Blain's Farm & Fleet center often sends customers to his store "because we can get things done faster. By 10 a.m., they're already booked up for the day."

Traffic flow

Milwaukee customers are thrifty, admits Jeff DeVries, vice president of F&F Tire World -- but they're also fiercely loyal. F&F, a 15-store chain started by Jeff's dad, Jake DeVries, in 1970, has seven stores in Wisconsin and seven stores in Illinois. "Customer loyalty is better here than, say, in Chicago. I know 85% of my customers by name, I know their cars and I probably even know their kids' names."

F&F sells a variety of brands, including Goodyear, General, Kumho and private and associate labels like Medalist, Brigadier and Spartan. MAST (Michelin Americas Small Tires) brands comprise more than half of the 150-employee company's total tire sales.

Snagging new customers can be challenging, according to DeVries. "We'll throw oil changes out there for $10.88 just to get people in the door. We'll give away free stuff like rotations and some flat repairs."

Most F&F stores are located near shopping malls, which ensures a steady flow of traffic.

Richard Hilborne, who manages the chain's outlet on the far north side of Milwaukee, competes with several tire dealerships and manufacturer-owned stores within a two-mile radius. Hilborne says service is the key to survival in the Milwaukee market. "There just isn't enough money in tires to pay the bills."

Top-notch repair jobs keep customers coming back, according to Assistant Manager Ken Salter. "People around here are still grounded in the idea that they want to trust the people who are working on their cars."

However, employee turnover remains a problem in Milwaukee. "That's why techs have wheels on their toolboxes!" jokes DeVries. "The unemployment rate here is low. It's easy to find jobs."

He keeps his workers by paying them competitively, providing good benefits and offering cash and commission incentives based on performance. Maintaining market share depends on quality personnel, he says. "We're fortunate because we have good people."

Strategic pricing

Gary Chmielewski, who runs Chmielewski Bros. Auto Service with cousin Jeff Chmielewski, doesn't worry about employee turnover. Most of his five-man staff has been with the company, which was started by Gary's father, Len, and Jeff's father, Red, in 1954, for decades. In fact, Red, 68, still helps in the garage one day a week (Len passed away several years ago).

While the ethnic mix of the working-class neighborhood surrounding Chmielewski's modestly sized shop has changed over the years from Polish and German to Latin and African-American, some things have stayed the same, he says. "Customers have always been price-conscious."

They also change vehicles frequently, buying inexpensive cars and then running them into the ground or selling them at modest prices to other blue-collar residents.

Chmielewski usually outfits customers driving "beaters" with a "good" tire that comes at a decent price. "But if we have a customer who'll be keeping his or her car, we'll sell them a higher-end brand like Firestone or Goodyear."

He marks up tires by $30 per unit, offering an "out-the-door" price that includes mounting, balancing and other related services to cut down on haggling. Seventy-percent of the tires Chmielewski sells are new; the rest are used.

The three-bay shop's marketing strategy -- taking ads out in several church bulletins and depending on personal referrals from satisfied customers -- is as low-key and effective as its business philosophy. "I was taught to give a good price," Gary says. "It may be less than the guy down the block, but you'll make that money all over again."

When downsizing is good

While some Milwaukee tire dealerships are growing, others, like Byron's Tire & Battery Corp. in the city's bustling north central section, have downsized over the years to remain competitive. "Twenty years ago, we were big in the wholesale and commercial businesses," says owner Dave Reinheimer. The company had four locations in the greater Milwaukee area that delivered Hercules brand truck tires throughout Wisconsin.

"But if you aren't doing $10 million a year, you can't compete," he says with a laugh, so he sold his commercial and wholesale divisions to Durand, Wis.-based Bauer Built Inc. in 1992. "We decided to go back to what we started with 40 years ago," when Dave's father, Byron Reinheimer, launched the now one-location, five-employee dealership. Dave's son, Vice President Steve Reinheimer, currently "makes all the big decisions."

Byron's sells passenger and light truck tires but still performs some medium and heavy commercial truck tire repairs. "We're picking up business from people who are disenchanted with incomplete service providers like price clubs and mass merchandisers."

Reinheimer notes several changes in the Milwaukee market. "You had the era of snow and studded tires, but that's gone."

The dealer sells few snow tires "because it's impossible to stock every size you need."

Some customers in his area also pay little attention to their tires "until they have a problem. They're either too lazy or not smart enough to take care of stuff."

Byron's Tire, which buys most of its tires from Bauer Built and the local distribution center of Green Bay, Wis.-based Pomp's Tire Service Inc., recorded sales of roughly $600,000 last year, a 20% increase from 1999.

Reinheimer joined Bridgestone/Firestone's TireStarz program last May. "Prior to that, we had no brand affiliation."

He used to be more aggressive in his advertising. For example, he hired legendary Milwaukee-area pro wrestler "The Crusher" to film a TV commercial more than 20 years ago that's still talked about by young and old customers alike. "But now word of mouth is 80% of our business."

Used tire niche

Selling tires in Milwaukee is easy if you can find a good niche, says Mike Lewis, who manages one of seven Mr. P's Tire Inc. stores in and around the Milwaukee area. Lewis has been with Mr. P's in various capacities since the company opened its doors more than 15 years ago.

Used passenger and light truck tires, primarily sold at outlets in low-income areas, comprise the bulk of the company's business. Mr. P's also shuns automotive service.

Selling only new and used tires "allows us to get things done faster," he says. "We can sell more tires because we're not trying to push other things."

Speed is critical in Milwaukee. "The bread and butter of my business are people who say, 'Can you put tires on this morning?' They want it now."

Lewis says availability is generally more important to customers than brand selection. So top-sellers vary from month to month. "I stock 30 to 40 brands, but may only stock a couple of sizes of a certain brand."

The company buys directly from Continental Tire North America Inc. and Goodyear. "I used to buy a lot of MAST private label stuff until they cut back a few years ago."

Each Mr. P's outlet operates as its own profit center. Company owner Larry Pashesky gives store managers the freedom to react to market trends as they see fit, according to Lewis. "We don't have to clear decisions with a million middle managers."

Lewis' shop sells nearly 60 new and used tires and performs up to 20 repairs a day with annual results "in the upper six figures."

"I can't open 20 stores in Milwaukee and pretend I'm a Wal-Mart. But if you know what you're doing, it's never that tough to do business."

Commercially viable

"The Milwaukee market has been very gracious to us," says Troy Seffinga, branch manager for Bauer Built's retail/commercial/retreading operation in Waukesha. Bauer Built invaded Milwaukee five years ago by setting up a distribution center in the city.

Now the company operates a modest-sized retail facility, a new Michelin Retread Technologies Inc. (MRTI) plant that retreads up to 125 medium and heavy commercial truck tires a day, and a thriving wholesale division that supplies several independent retailers throughout the area. The company moved out to Waukesha last September; working from the suburbs "allows us to get to our customers more quickly."

Bauer Built services 1,500 to 2,000 commercial fleets in the southeast Wisconsin region, according to Seffinga -- "everyone from waste disposal companies to line-haulers that go from coast to coast."

While Milwaukee is not a trucking hub, suburban sprawl to the south of the city toward Chicago, to the west toward state capital Madison, Wis., and to the north toward Green Bay offers many commercial tire opportunities due to increased construction.

The ongoing consolidation of commercial tire service providers in and around the Milwaukee area is another plus, according to Seffinga. "A lot of smaller independent dealers who used to be in it have elected to get out." The region boasts only a handful of major commercial tire players now, he says, including Pomp's, Goodyear and BFS-owned GCR Truck Tire Centers.

Bauer Built's local approach is based on customer convenience. "We go to our clients' locations. They don't have the luxury of sending drivers to our shop anymore."

Six fully equipped service trucks run around-the-clock, and a four-person commercial sales staff constantly pursues new accounts. "Visiting accounts personally is the best kind of advertising we can do."

Tours of Bauer Built's 10,000-square-foot retreading plant in Waukesha is another effective sales tool. "It takes away some of the fears (potential customers) may have about running on retreads." Milwaukee customers are starting to accept retreads as quality alternatives to new tires, Seffinga says. "The technology has come along so fast. And fuel prices -- anything that will save fleets money is being investigated closely."

Bauer Built, he admits, has an advantage given its status as the sixth largest independent commercial tire dealership in the United States, according to Modern Tire Dealer. But smaller commercial dealers can succeed in Milwaukee "if you have a specific niche and one or two larger customers.

"The diversity of fleets here makes it challenging. But every time you turn a corner there's a new opportunity."

Down the road

Dealers, while optimistic about the Milwaukee tire market's future, are realists. "Milwaukee is tough," says Byron's Reinheimer. "It's always been tough."

Competition from other sources will increase, they agree. And value-minded customers will continue to scour the city and its suburbs for good deals.

Auto service will play a bigger role than ever in the years ahead. "If you're selling tires, you'd better address the service end of it," says Lau. "Service will keep you alive," DeVries agrees.

Competition between independent dealers is expected to intensify, as well. "There are fewer dealers, and a lot of people don't want to go to Sears or Wal-Mart," Lewis says. However, "more people driving more miles per year" means a constant supply of new customers, says F&F's Hilborne. And customers "are still willing to pay the price for a decent tire," Chmielewski says.

There always will be a spot in and around Milwaukee for hard-working independent tire dealers who are flexible and open-minded, according to Matschke. "Sure, it's a hard market," he says. "But then again, I don't think any market is easy."

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