Against the majestic backdrop of the Rocky Mountains, the city of Denver, Colo., looks small. But don't let that fool you. With some 2.4 million people, Denver boasts one of the largest metropolitan areas west of the Mississippi. And it's one of the fastest growing areas in the country. More than 265,000 people have migrated to "The Mile High City" since 1990; 31,000 people moved to Denver in 1999 alone.
Denver's exploding population means plenty of tire buyers. More than 100 independent tire dealerships operate in and around the city. Scottsdale, Ariz.-based Discount Tire Co. Inc. has 23 Denver-area outlets. Denver's own Peerless Tyre Co. has 16 stores in the region. There also are 23 Big O franchises in Denver.
Aside from each other, the city's independent tire dealers face competition from seven Wal-Mart tire centers, six Pep Boys outlets, several Bridgestone/Firestone Americas Holding (BFAH) Inc.-owned Tires Plus Stores (with more on the way) and a number of Costco warehouse clubs. BFAH also has saturated the market with nearly 25 company-owned Firestone stores. Goodyear Tire & Rubber Co. enjoys a large presence with more than 20 company-owned outlets. Throw in four Bandag Inc.-owned Tire Distribution Systems (TDS) shops plus dozens of service stations, and Denver's tire dealers have their work cut out for them.
Modern Tire Dealer recently spoke with several Denver tire dealers to find out how they achieve and maintain profitability in one of the nation's most competitive markets. Whether wholesaling tires, retailing them or, in some cases, both, all agree it's more challenging than ever.
Niche growth
Think 100-plus dealers is a lot? You should've seen Denver 15 years ago, says Gary Bergman, owner of Meadow Creek Performance Tire, a 29-year-old, two-store wholesale/retail operation nestled between warehouses and smokestacks on the city's industrial north side. Denver had at least 300 independent tire dealers back then, he estimates.
But consolidation and increased competition from large chains like Big O and Discount Tire have changed that. "The mom-and-pops are a dying breed."
Denver has plenty of tire wholesalers, though, according to George Osborne, Bergman's right-hand man, who runs Meadow Creek's main store. "We have more here than they do in Los Angeles!" As a result, price undercutting at the wholesale level is rampant, Osborne says, lowering certain products to commodity status.
How wholesale customers buy tires also has changed -- and not for the better. "When I started at Meadow Creek eight years ago, you could still find retailers who would stock product (and) turn it over for you. Now I see a lot more 'buy-as-we-need.' We're selling them two tires at a time instead of 100 at a time. It's depressing."
While wholesaling comprises 80% of the $5 million-a-year dealership's total sales, the company makes a tidy sum selling expensive tires and wheels to high-end vehicle owners, especially SUV drivers. "Colorado is the SUV Mecca," Osborne says. "I'd bet that one out of every two households in Denver has an SUV." The trend is even more prevalent in affluent ski resort towns like Frisco, Colo., where Meadow Creek's second shop is located.
Meadow Creek reaches out to upscale customers by participating in local sports car clubs. Bergman even gives driving lessons to members of a Frisco-based Audi group. The dealership also takes orders through its Web site -- up to 50 a month during "peak times" like September through December, according to Osborne. "We'll mount and balance a set and ship them right out."
When customers put snow tires on during the winter months, Meadow Creek stores their summer tires and rims at its facility for $25 "per season." And the company charges $25 to house winter tires during the summer. "Tire storage is a big deal for us," Osborne says. "It guarantees they'll come back."
Like other parts of the country, Denver is experiencing growth in the large diameter, low-profile tire segment. "It's becoming more of an 18-, 19- and 20-inch market." Osborne predicts demand will skyrocket this year, "based on the calls I've been getting."
Both Bergman and Osborne believe Meadow Creek is well equipped to handle Denver's evolving market segments. "We won't be a volume dealer," says Bergman. "If we think we can compete with Big O and Discount Tire, we're dreaming."
"But we're so niched-out, our retail (business) isn't affected by the chains or the economy," Osborne says. "Most of our clients aren't living from paycheck to paycheck. They want to be treated as kings and that's what we do."
Proceeding with caution
Peerless Tyre Co. has been selling tires at the retail level since 1949. "That's all we do," says company President Sam Forbes. Under Forbes' guidance, Peerless, which began as a single gas station, has grown to encompass 16 outlets in the Denver area, plus another 37 in several surrounding states.
Growth has been "slow and steady," according to Forbes. That's due, in part, to the company's methodical approach to expansion, which the Denver market exemplifies.
All but one of Peerless Tyre's Denver-area stores are located in the suburbs. Each shop has its own "market" that extends in a 1.5-mile radius around the store. "We encourage each store manager to know the people there," Forbes says. Some areas overlap, so "we keep a close eye on them." Each outlet has a computer-generated inventory unique to its coverage area. The proprietary system tracks the previous 15 months of sales at each location to determine its product mix. "We try to keep emotions out of the ordering process."
Peerless doesn't target specific demographics. "Our goal is to sell 100% of the tires in each store's radius," says Forbes. However, the company "does well in low-end, blue-collar markets (with) older cars and pickup trucks."
Forbes, who owns 100% of the dealership, uses Denver as a model for other towns in which Peerless operates. Denver customers "are the same as (buyers) in Texas or Wyoming. They want to know they're dealing with professionals."
He admits Denver consumers "might be a little more price-conscious than in the past. The market has changed dramatically. In the 1960s, there was a huge gap between major brands and private brands. The price compression in our industry doesn't allow that anymore." The result? More flag brand sales, he says. Peerless sells the Bridgestone, Firestone, Dean and Dunlop brands, plus its own Peerless private label line, which Bridgestone/Firestone manufactures.
All advertising decisions are made at company headquarters. "It's a closed-circuit system, but we get a lot of input from our store managers," says Forbes. The bulk of Peerless' ad money goes into circulars that are distributed door-to-door by store personnel and inserted in newspapers several times a year. The company runs few TV and radio spots due to cost issues.
One of the major challenges of doing business in Denver is finding affordable space, according to Forbes. "The Colorado real estate market has been inflated. We rejected 12 sites last year -- too damn expensive!" However, he has six real estate agents constantly looking for new locations. "We need to be convinced (stores) will turn profits the first year."
Meanwhile, Forbes plans to play it cool. "Colorado has a tremendous history of boom-or-bust economy; it started with the very first Gold Rush," he says. "If you get too heady in the boom time, when the bust comes you have problems. So we're very conservative fiscally. I don't foresee a change in that."
Mr. Hustle
You'd be hard-pressed to find a more striking business contrast within the city of Denver than comparing Peerless Tyre's sprawling, ultra-modern complex in the suburbs to Denver Discount Tire Center's tiny, cramped shop in the city's rough-and-tumble, inner-city Washington Park neighborhood. And good luck finding a dealer with more moxie than Denver Discount Tire owner Vince Herrera!
The 39-year-old Herrera started working at the store -- which opened as a retread shop during the 1940s -- as part of a high school work/study program in 1978. In 1989, after saving up enough money, he bought the dealership from owner Ron Wicks. Since then, Herrera and his younger brother, Jim, have carved out their own niche while adjusting to changing market conditions.
Commercial tire accounts have come to represent 80% of Denver Discount's business. "During the slow months, they keep us going," Vince says. "They always buy." His commercial clients include local pick-up and delivery fleets, 20 to 30 small car dealerships in the neighborhood and Gates Rubber Co., a company whose large factory across the street from the shop makes rubber belts and hoses.
Herrera promotes the Dayton brand but few others. "I don't like being told what to sell." He gets the majority of his tires from small area warehouses, like Tire Distributors Inc. (TDI). "There are too many wholesalers in Denver, but I love it. They fight for my business."
Each tire he gets from local distributors is on consignment. "I pay them the next day when I sell the tire." Herrera usually makes several trips a day to warehouses around town. (Within two minutes of meeting Herrara, we hopped into his pickup truck and rode with him to snag two industrial tubes at TDI's downtown location and one passenger tire from Jim Paris Tire Co., a big Denver distributor headquartered on the north side of the city.)
Most of Denver's tire wholesalers are family-owned, he says; they know and trust him. "It's different than a corporate environment."
Critics might call driving all over to pick up a single unit a waste of time; Herrera sees it as an investment. "That one tire will bring a guy back for three more. He'll remember that you went out of your way."
On the retail side, Herrera caters "to people who have less money, because there are more of them." Most of his customers are creatures of habit. "Denver doesn't like change at all. It's hard to plug people into new brands. A lot of my customers, especially older ones, ask me, 'What's on your car?'" Ninety percent of his clients are repeat customers. "When the phone rings, that's when we try to bring new people in. The only ads I can afford to do are Yellow Page ads." A small one, he says, might cost $1,000 a month.
Auto repairs like brakes, alignments and "small stuff" like fuel pumps and wiring account for less than 10% of his total sales. But his shop's techs fix plenty of nail-hole punctures. "If someone buys a tire from me, I'll fix it for free. If they buy it from someone else, I'll charge them $8. Or if it's something simple, I'll sometimes give it to them, especially if they didn't know we were here. Hopefully, they'll remember and come back."
The Hispanic community has been especially loyal. An estimated 60% of Colorado's total Hispanic population lives in Denver, according to Herrera; 30% of his customers are from a Latin background. Most pay in cash, "which I like -- no credit cards, no checks. A lot of these people are afraid to go to bigger (tire) stores" due to the language barrier and cultural unfamiliarity. "They come to us instead."
Familia and friends
Greg Lopez, owner of The Tire Store, a single-store dealership on the city's northwest side, credits much of his company's recent growth to the loyalty of Hispanic buyers (several of his employees speak fluent Spanish).
The concept of family is important to many of Lopez' Latino customers. "So we try to tell them we're a family business and that we have a lot more to lose" than big chains or discounters. "It strikes a chord with them."
Most tire buyers in The Tire Store's working class neighborhood are not brand-loyal, according to the second generation dealer (his father, Rich Lopez, founded the dealership in 1987). Lopez says he can steer more than 90% of customers to the tires he wants to sell. "They rely on us to provide guidance."
The same goes for custom wheels, which Lopez began selling two years ago, mostly to younger buyers with plenty of disposable income. He unloads 20 tire/wheel packages a month at $1,500 a set, on average. "I wish we would've started selling them 10 years ago."
While inner-city customers remain his bread and butter, Lopez says buyers drive in from Vail, Colo. (a 100-mile distance), and other mountain towns to purchase tires at his dealership. "A lot of people will make a day of it and pick up some tires along the way."
Lopez and his staff make a point to stress the true value of tires both in person and over the phone. "We try to dispel the 'four-for-$100' myth," he says. "We tell them, 'Beware, you may not find what you're looking for.'"
The dealer has altered his marketing strategy over the years to reflect current market conditions. He stopped running traditional newspaper ads last year after rates dramatically hiked following the merger of Denver's two main newspapers. Classifieds are now his prime medium.
He also has joined local radio/TV personality Tom Martino's "Trouble-Shooting Network," a syndicated program that directs listeners and viewers to high-quality service providers. Martino mentions Lopez on his Web site as well.
Though he feels some pressure from chains like Discount Tire, Big O and various price clubs, Lopez doesn't worry about the competition. "The Denver market is growing and we've only grown with it. We're really looking forward to the future. If you have the right attitude, there's room for everyone."
Last of the big spenders?
Like in other big cities, customers in urban Denver run the economic gamut from poor to wealthy. And a large amount of the area's buying power resides in the suburbs.
Southpark Tire & Auto Center, a seven-bay Goodyear Gemini store, is located in the southern suburb of Littleton, right next to Highland Park, Colo., one of the most affluent areas in the state. Residents there commonly pull down $80,000 or more each year. So price is no object, right? Wrong, according to Southpark Tire owner John Tracey. "These higher income people have high debt. They live beyond their means." It's not unusual for seemingly prosperous customers to run through several credit cards before they find one with enough room on it to pay for a repair job, according to Tracey.
Southpark Tire is part of an upscale, plaza-like complex that includes an auto body shop, a transmission repair garage, a car rental company, a window tinting shop and a high-end repair facility that fixes nothing but Volvos, Porsches, Mercedes and other luxury cars. The facility was built in 1986; Tracey moved in 12 years ago, after his 17-year-old Exxon dealership up the road closed following the oil company's exit from Colorado.
While at Exxon, Tracey had driven past the plaza every day after work. "I often wondered if it would ever fly, but it has worked out fairly well." Fellow tenants often refer customers to his store.
In the face of direct competition from a company-owned Firestone shop and another independent dealership directly across the street, Tracey has managed to maintain 15% margins on tires without featuring tires in any of his ads. "I've tried to buy as competitively as I can. Unfortunately, the big purchasers get the deep deals. The tire business is going to the mass merchandisers. Little guys like me are losing the battle." Instead, he uses service deals to draw customers.
Denver's economy has taken a turn for the worse, Tracey says, which his books reflect. "The dot-com jobs all ended up here in Denver; now we're going through a reversal." Last September, following the World Trade Center and Pentagon terrorist attacks, his sales dropped 12%; October and November weren't much better. Fortunately, Tracey's sales were up in January, and he predicts they'll continue to rise, thanks in no small part to growing SUV and light truck tire sales. "There are a lot of soccer moms who need to truck nine kids around."
Tale of two wholesalers
The headquarters for Jim Paris Tire Co. and Redco Tire Co., both thriving tire distributors, sit next door to each other on Denver's north side. But that's where most of their similarities end.
Paris Tire, which also has six retail shops around town, ships tires out of two local warehouses, one of them a 60,000-square-foot facility. Redco has two significantly smaller distribution centers.
Paris Tire's multi-story corporate office contains amenities like an exercise room, a Fortune 500-style meeting chamber and a bar. Redco's entire staff works out of a building that's slightly larger than an average-sized house.
The companies' distribution methods differ, too. Paris operates a fleet of trucks that deliver tires throughout Colorado, western Kansas, southwestern Nebraska, southern Wyoming, northern New Mexico and parts of Utah. "We hit all places at least once a week, sometimes twice a week," says Vice President Bob Paris.
Redco has three trucks that service Denver-area customers, and ships to 18 states via common carrier. It takes all orders over the phone. "We have a salesman in Portland, Ore., who sells tires for us in southern Colorado," says President Ron Antony.
Both companies have adapted to Denver's changing market demands. "We've had to expand into everything -- more farm tires, more OTR tires -- rather than strictly sell truck tires," Antony explains. Redco also carries specialty items like farm implement, backhoe and forklift tires. Denver's growing number of fly-by-night tire wholesalers, who operate out of their homes or pickup trucks, also have cut into profits, he says. "Their overhead is low. That's the kind of stuff that hurts you."
Keeping existing wholesale customers takes more ingenuity than ever, according to Paris. "We have open houses for our customers." The company also offers incentive trips. Last month, it took more than 200 clients to Hawaii; past trips have included cruises to the Caribbean. "You always have to come up with something new."
Antony is cautiously optimistic about the Denver market's future. "There's room for everyone here but that can change." Before forming Redco with partner Ed Vanderpool in 1987, Antony did great business in the early 1980s selling tires for another company to end users in Texas. "But when the oil fields went down, those guys stopped paying their bills. We're experiencing a tremendous amount of lay-offs (in Denver); that's something we may have to watch out for again." Redco tallied between $3.5 and $4 million in sales in 2001.
"We hold our wholesale margins pretty well," says Paris. The company's sales totaled $30 million last year for the fourth year in a row. Thanks to an ongoing influx of new people and new construction, the Denver market "is going to boom."
Alternative approach
Foree Tire Distributors, also a Denver wholesaler, tackles distribution from yet another angle. The 27-year-old dealership only sells private brand passenger and light truck tires (TBC Corp.'s Multi-Mile, Sigma and Fulda lines). "We've never carried a major brand!" says Arnold Thomas, Foree Tire vice president. His older brother, Whitney, is the company's president.
Private brand acceptance among Foree Tire's 200-plus Denver-area customers is "very good," Arnold says. Many of them promote private brands over major brands at their shops. Others use private label tires as second-tier offerings. Foree's sales staff does its part by keeping retail dealers updated on private brand design enhancements. "We have statistics they can show their customers. We give them features and benefit brochures, ad materials -- whatever they need."
Foree Tire also distributes niche products like lawn and garden, front and rear farm, loader and forklift tires that some other Denver wholesalers avoid, according to Arnold. "Our customers can't stock all of it. They'll pay whatever we ask." The company has three warehouses: one in Denver, one in Colorado Springs, Colo., and one in Gering, Neb. Arnold refuses to lowball his prices. "We aren't the cheapest in town."
Foree Tire's sales were up last year, and Arnold projects a 5% increase during 2002. The dealership, which has added at least 100 new clients over the past decade, has outgrown its 25,000-square-foot facility in Denver, so the Thomases are scouting new sites.
Like other Denver tire wholesalers, Arnold says the market will remain competitive. "Everybody has a sliver of the pie." Car and light truck tire size proliferation should keep wholesalers busy. "Retailers can't stock everything. They'll be more dependent on local distributors."
Commercial changes
Though J.W. Brewer Tire Co. sold out to Bandag Inc. when the Muscatine, Iowa-based retread supplier formed TDS in 1997, the company's 75-year history as one of Denver's top independent commercial tire powerhouses gives Lex Brewer a unique perspective on the market. Brewer, now TDS' Western Division general manager, has seen plenty of independent commercial dealers exit the business since he started with the family dealership in 1977 as a high school student. "There's been tons of consolidation," he says -- and not just among Denver's commercial dealers. "A lot of our accounts are now owned by the large conglomerates."
For years, most of Brewer's customers were local. "Denver isn't a major hub for large national accounts. Fleets come in and out of here, but as far as major yards and other facilities go, Denver isn't big for a lot of companies."
Servicing local fleets remains profitable, according to Brewer. A growing number of them are signing up for national accounts to get better prices, he says. "There are lots of national accounts that don't even leave Denver. It's turned into a buyer's market."
Denver's commercial tire customers are dealer-loyal, not brand-loyal, Brewer says. When Michelin North America Inc. dropped Brewer Tire after the dealership was sold to Bandag, the company switched many of its accounts over to the Bridgestone brand with minimal problems. "People still do business with people. We proved that."
In Denver, Brewer supervises four TDS shops, including a retread plant that produces 250 medium truck tire retreads a day. "We do a lot of construction work. We service a big gold mine in Colorado Springs."
Delivery speed has become a problem as the city and its suburbs have expanded faster than traffic planners and road builders have responded, Brewer admits. But new highways, including a belt being constructed around the perimeter of the city, should alleviate traffic jams, he says. Meanwhile, Brewer is trying to convince customers to keep pre-mounted tires at their own facilities, especially accounts that require daily service.
Service will be the key to continued commercial success in Denver, he says. "The guy with the best service will win, hands down. We've believed in that forever.
"Are you selling a price or a program? You need to identify problems and come up with solutions. Customers will pay extra for that."
Grant Peratt, general manager of A&E Tire Inc., Denver's largest independent commercial tire dealership, agrees. A&E Tire operates two full-service facilities, 14 service trucks and a three-year-old Michelin Retread Technologies Inc. plant that retreads 110 medium truck tires a day. The $14 million-a-year company has tripled its size over the past three years and is shooting for $16 million profits in 2002.
"We have 400 or 500 accounts," he says. Most of them run fewer than 10 vehicles. "Denver is not a city where you have eight or 10 major carriers."
There are a few small independent commercial tire dealers left in the Denver area, according to Peratt. But he regards two local Michelin-owned Tire Centers Inc. stores, a Wingfoot Commercial Tire Systems outlet and TDS as his major competitors.
In their efforts to sell more tires for less, commercial tiremakers often shortchange themselves, he says. "I get out on the street quite a bit and see many who aren't charging enough for their tires." That's never been a problem at A&E. "We've worked hard to maintain our margins." The 16-year-old, 95-employee company has even turned price hagglers away. "We feel, as an independent, that you have to make a profit."
Truck tire prices in Denver have been stagnant over the past few years because of the competition, Peratt says. Some retread prices have even fallen. But he isn't worried. "We're still growing."
And staying independent will remain a priority. "In some ways, being a small company provides an advantage. Hopefully, the quality service personnel we have justifies the higher price."
Denver dealers struggle with shallow labor pool: But post-Sept. 11 fall-out may end shortage, some say
One of the biggest challenges facing Denver-area tire dealers is recruiting quality workers. "It's very difficult to find good people in this town," says George Osborne, general manager at Meadow Creek Performance Tire. "The labor pool out here is limited. You get guys who want to walk in and make $50,000 a year."
As a result, the dealership promotes from within. "Over the years, we've tried bringing in hot-shot salesmen and it didn't work. Now, every single employee starts either driving or working in the warehouse." Meadow Creek also has doubled its drivers' salaries over the past few years just to keep them on board.
The problem even extends to larger companies like Peerless Tyre Co., which has 16 outlets in the area. "We'll go through 200 applications to hire one person," says Peerless President Sam Forbes, who employs more than 120 people in and around "The Mile High City."
Forbes screens potential hires "rigorously." The multi-step process involves several interviews and paper/pencil tests. "Nobody gets hired without a final interview by our management committee."
Prior to Sept. 11, finding good workers "had been close to impossible," according to Forbes. The turnover rate -- about 75% a year -- hit the dealership hard. Now employees seeking greater job security are more likely to stay put.
John Tracey, owner of Southpark Tire & Auto Center in Littleton, Colo., agrees. Before last fall's terrorist attacks, "help was hard to come by. But we've had a turnaround. I have people coming through the door ready to wrench again."
Big O boom town: Distributor outlines Denver strategy
Denver's independent tire dealers regularly cite Big O as a major competitor, and with more than 20 Big O stores in the area, it's easy to see why. TBC Corp.-owned Big O has called Denver its home since it was established in 1961. Modern Tire Dealer recently stopped by the distribution group's state-of-the-art, 20,000-square-foot corporate headquarters in Englewood, Colo., a Denver suburb, to discuss its plans for the Denver market with Tom Staker, senior vice president of franchise development and training, and Kelley O'Reilly, senior vice president of sales and marketing:
MTD: What is Big O's Denver strategy?
O'Reilly: Denver has a huge amount of growth. The key is ensuring we have a shop in every area.
MTD: Are there more Denver stores in the works?
Staker: Two new stores have already been approved. We have franchisees in queue. They'll open within 60 to 90 days. Our strategy is to fill in where it makes sense to have another store. We're very careful where we place our stores in relation to our existing franchises. We do extensive demographic studies, we study traffic patterns. We rely heavily on our regional staff and our dealer advisory committee.
MTD: Is Denver a test market for Big O?
O'Reilly: No. We've never piloted a program here.
MTD: Have you ever closed a Denver Big O store?
Staker: No. From time to time, they change hands.
MTD: What are the advantages of doing business in Denver?
Staker: Strong income, a huge light truck/SUV market. Denver is a friend to Big O; we're well known around here.
MTD: Are Denver tire buyers different than consumers in other Big O cities?
O'Reilly: Denver is less price-sensitive than other markets. They're very much attuned to value; they want a good buying experience. They have a lot of money, and if they don't like something, they'll go somewhere else.
(Denver is part of Big O's Central Region, which also includes the rest of Colorado, Wyoming, South Dakota, Kansas and Nebraska. Big O is the third largest tire distribution network in North America with more than 500 franchises, according to MTD statistics.)
The challenge continues: Denver gets the nod this year
Since our first "Challenge" piece on Philadelphia tire dealers in 1986, we have profiled the Dallas, Seattle, New Orleans, San Francisco, Los Angeles, Atlanta, Las Vegas, Orlando, Minneapolis/St. Paul, Boston, Portland (Ore.), Akron, Boise, Milwaukee, Vancouver and, now, Denver markets. We talk to independent tire dealers -- and their competitors -- within the backdrop of a specific market with the goal of passing along information that will help you run your dealerships more profitably. One constant we have found is that profitable dealers sometimes follow similar strategies in building their businesses.
