Burning issues: Tariffs, online sales, tight margins
The independent tire dealers on this year’s Modern Tire Dealer 100 are finding ways to grow in the face of government regulation, changing consumer buying habits and economic uncertainty.
Over the last 12 months, they have endured tariffs imposed on Chinese-made tires and an unexpected source of online competition. MTD asked dealers for their thoughts on these new threats as well as steps they are taking to improve their profitability. But before we look at their responses to these issues, we’ll look at the most visible evidence of their growth: new outlets.
More stores in more markets
Two of the biggest dealers in terms of stores grew significantly over the last 12 months. Reinalt-Thomas Corp. added 23 locations to its chain of Discount Tire and America’s Tire stores to top the list at 900 outlets. New stores were opened in a dozen states: Colorado, Nebraska, Kansas, Iowa, Illinois, Indiana, Texas, California, South Carolina, Tennessee, Arizona and Ohio.
Monro Muffler Brake Inc. fueled its expansion by acquiring other dealers, including former list makers Hennelly Tire & Auto Inc. and Martino Tire Co. In all, Monro added 63 tire stores for a total of 490 and the No. 3 spot. The fourth largest retailer is Les Schwab Tire Centers Inc., which added seven stores to bring its total to 389 outlets. Mavis Tire Supply Corp., which does business as Mavis Discount Tire, added 21 locations through a combination of greenfield projects and acquisitions. The Millwood, N.Y., company, which has operations in New York, New Jersey, Connecticut and Pennsylvania, is No. 5 in the ranking with 167 stores. Somerset Tire Service Inc., which added five stores for a total of 155 outlets, is No. 6 in the ranking.
New to both the Modern Tire Dealer 100 and to tire retailing is Express Oil Change LLC, which debuts at No. 7 with 136 stores. Founded in 1981 as an oil change provider, the Birmingham, Ala.-based chain entered the tire business two years ago. In 2013, Express Oil Change purchased seven tire stores operated by Tire Engineers LLC, also of Birmingham. Next to be acquired were Epperly Tire and Auto Centers (four stores) in 2014, Upton Tire Pros (four stores), Trax Tires Tire Pros (10 stores) and Savannah Tire, Brake and Alignment Centers (nine stores) in 2015. The acquisitions total 34 tire stores, which operate under a wholly-owned subsidiary, Tire Engineers LLC, and retain their original names and brand identities. The company also added tire-related sales and service to its 102 Express Oil Change and Service Center outlets. Those stores are in the process of being rebranded as Express Oil Change and Tire Engineers. In addition, the company has 108 franchise stores.
Also growing mainly through acquisitions is ATV Inc., which does business as American Tire Depot in Southern California. The La Mirada-based company added 14 outlets to hold the No. 13 spot with 82 stores. Five stores were opened in the first five months of 2015 alone.
McCarthy Tire Service Co. grew its footprint by seven locations with the acquisitions of Terry-Haggerty Tire Co. of Albany, N.Y., Commercial Truck Tire Center of Syracuse, N.Y., Hartman Fleet Services Inc. of Manassas, Va., and Ragan Tire Group LLC of Concord, N.C. With 49 commercial tire stores, McCarthy ranks No. 23.
The purchase of three Galaxy Auto Centers and two Goodyear Tire and Service stores in the Minneapolis, Minn., metro area propelled Heartland Tire Inc. onto the list for the first time. The Brainerd, Minn.-based company is tied for No. 91 with 12 stores. Bauer Built Inc. acquired Central Tire & Tread Inc. of Lexington, Neb., and opened three locations near Chicago and one in Wisconsin to expand its presence in those areas. The new locations brought Bauer Built, which is headquartered in Durand, Wis., to 35 outlets and the No. 32 spot. Cincinnati, Ohio-based Tire Discounters Inc. also added five retail stores to land in the No. 9 spot with 94 outlets. The company plans 12 to 14 new stores in the coming year, with four set to open in the Chattanooga, Tenn., area in the fall of 2015.
Sixteen dealers added one or two stores. Black’s Tire Service Inc., based in Whiteville, N.C., opened two outlets. “The stores take a lot of overhead to open; we do it to build our service,” says Rick Benton, vice president. “With margins on tires we are trying to trim costs where we can, but it’s hard because we’re all about service.” Black’s Tire is in the No. 30 spot with 37 combination commercial/retail outlets.
The dealer in the No. 2 spot with 769 outlets, TBC Corp., says it plans to add eight to 10 stores in the next year. “TBC Corp. is well-positioned for sustainable growth; we’ll continue to seek out opportunities that make the most sense for our brands and our customers,” says Dino Medina, vice president of construction and facilities operations.
Burning issue: Tariffs
The ability of any retailer to service customers hinges on product availability. “When a customer comes in, you’ve got to have something for them that day, and it’s our job to figure out how to do that,” says Sam Forbes, president of Peerless Tyre Co. The Denver-based company is tied for No. 17 with 57 Peerless Tires 4 Less stores in seven states.
That job became harder for some dealers in November 2014 when the U.S. government imposed tariffs on tires made in China. “The tariffs just cause confusion in the marketplace with no particular net gain in my opinion,” says Forbes. “From where it hits us, we’ve had difficulty. You have to struggle to find other suppliers. When anybody’s down it puts pressure on the rest of the vendors. The Laufenn brand we brought in to replace the Fuzion. It just tightens up supply.”
The tariffs also led to pricing uncertainty that caused a lot of issues, according to Bill Ziegler, president of Ziegler Tire & Supply Co. “When the tariff was first announced it caused some supply issues as some of the large wholesalers and retailers tried to pre-buy inventory. We have tried to deal with the more reputable suppliers so as to be more protected.” The Massillon, Ohio-based company is tied for No. 51 with 24 outlets.
Plaza Tire Service Inc., which is tied for the No. 19 spot with 56 outlets, is adjusting its marketing plan in response to the tariffs, according to Mark Rhodes, president. “I personally have plenty of inventory, but the tariff has created a lot of changes in our product screens. The uncertainty of what’s going to fill the product screens in the future creates a lot of changes in the marketing plan. You used to be able to have one line of tires in stock indefinitely. Now it may be this brand for five months, and this brand for six months.”
Other dealers report little impact from the tariffs. “On the supply side we haven’t seen much change because there was a lot of purchase ahead of the tariff kicking in,” says Avo Kamberian, vice president of marketing for No. 13-ranked ATV Inc., which operates 82 American Tire Depot stores in Southern California. He says the strikes at the ports of Los Angeles and Long Beach, Calif., affected the supply chain more than the tariffs.
The tariffs led to some net price increases but declining oil prices offset significant impact, according to Kamberian. “The oil prices have come down drastically and therefore the cost of products has come down at the same time so that allowed all the manufacturers to lower their cost structures despite increasing the price because of the tariffs. So overall, there was some price increase. It’s brand by brand obviously, but the effect in the overall market at the end of the day is negligible.”
Nick Phillippi, general manager of Nebraskaland Tire Co. Inc., says the tariffs have not affected Nebraskaland Tire, Kansasland Tire, and Coloradoland Tire stores. “We did lose our opening price point lineup and had to adjust our entry level tires downward a little to maintain that business.” The Lexington, Neb.-based company is No. 28 with 40 stores.
The impact of the tariffs on supply was minimal at Tireman Auto Centers, according to Randy Jones, who is president of the Toledo, Ohio-based dealership. “We had purchased in advance and had our bases covered. On the pricing side the impact has been minimal as well. We anticipated that there would be greater increases. We have not found that to be the case yet.” The company’s 19 retail stores put it at the No. 58 spot.
Burning issue: Online sales
Dealers faced a new challenge when Goodyear Tire & Rubber Co. began selling tires direct to consumers through its website in May 2015. “It takes the tire sale away from the independent dealer and makes us just an installation point,” says Jason Williams, executive vice president of Jack Williams Tire Co. Inc., in Scranton, Pa. “We are tire dealers, not installation points for manufacturers and online sellers.” The company is tied for No. 35 with 31 outlets.
David Mickelson, vice president of Graham Tire Co., says he understands Goodyear’s reasoning for going direct to consumers but he is disappointed that current Goodyear dealers and Tire Service Network (TSN) dealers do not have a priority in the program. “It makes me question why we pay TSN dues. We will need to place our pricing online to remain competitive, and I believe that the end result will be that the act of purchasing tires is only going to be about price rather than features and benefits. I also believe that in the long run, this will have an adverse effect on the number of Goodyear tires sold.” Graham Tire has 29 outlets in Iowa, Minnesota, Nebraska and South Dakota and is tied for No. 38.
At least two dealers expect more manufacturers to begin online tire sales. “Michelin will be doing the same thing in the near future. We will monitor how this manufacturer Internet marketing works out. It is definitely not good for the independent dealer,” says Rusty Coats, operations director for Bore/MPC LLC, which does business as Big O Tires in Missouri and Arkansas. The company is tied for the No. 77 spot with 14 stores. Forbes says Peerless Tires 4 Less stores do not do business with Goodyear, so there’s no direct effect at this moment. But that could change. “The hand wringing from where I’m sitting is that if Goodyear pulls this off, all the manufacturers will be doing it.”
Paul Couture, president of Mesa, Ariz.-based Paragon Enterprises Inc., which does business as Advanced Auto Service & Tire Centers, says he is participating despite some objections. “In effect, we and other dealers have competed with manufacturers and suppliers since I started in business 26 years ago with corporate stores and other areas. In many ways this continues along the same lines.” The Mesa, Ariz.-based company has 14 stores to tie for the No. 77 spot.
Benton points outthat Goodyear is involving its dealers in the program and steering business to them. “As long as we find ways to keep the tires profitable, it’s OK. We need to drive more profit back to the dealers. We’ve got to stay with current trends. We know the trend is toward the Internet. The Internet is a necessary evil, but we’ve got to make it good for the dealers. Dealers’ costs are going up, not down, so we’ve got to find ways to drive more profit to dealers.”
Burning issue: Tight margins
To help boost their margins, dealers invested in stores, technology and training. “We are adding a new store, upgrading equipment and implementing a technical training program with an on-site tech trainer and training facility,” says Jim Ramsey, CEO and president of Lamb Ventures LP, which does business as Lamb’s Tire & Automotive. The Austin, Texas-based company opened its newest store in June for a total of 15 outlets and a tie for No. 71 in the ranking.
Training has become a vital part of the business model at Graham Tire, according to Jen McCann, marketing coordinator for the company’s Minnesota and Iowa stores. Graham also is implementing customer relationship management software for its sales force and focusing on digital marketing to increase traffic to its website as well as its stores. “Our company is always working to increase profitability, though we know it really has more to do with the small steps we do to improve individuals who work for Graham.”
Training is essential at Tireman Auto Service Centers as well. Dramatic improvements to the on boarding process lead to a quicker ramp-up for new employees, says Jones. “We are using Web-based applications for training as well as using tablets that can verify learning.” The company is also remodeling older stores and improving its mobile applications for online shoppers.
The Benton family opted to increase the skills and knowledge of its employees in order to help improve the profitability of Black’s Tire Service. “Our business is our people, so we try to find ways to be efficient and innovative, it’s a daily challenge,” says Benton. “It’s hard to do so much cost-cutting. If you are service, what do you cut?”
Black’s Tire Service chose to invest in its people, and the BTS Training Academy opened in October 2014. The approximately 6,200-square-foot facility houses conference and training areas and a retail showroom. Employees from the company’s stores as well as its wholesale dealer partners participate in sales, equipment and safety training.
“It’s a big investment up front, but we’ve already seen better morale in our dealers. We’re giving back to them and giving them opportunities to train at no cost to them. Training helps us get more efficient and reduces turnover. It lets people know we’re investing in them for the future, and that means a lot to them,” says Benton. ■
Other sources for tires
Tires are available for purchase from seemingly endless sources outside the independent dealer channel. Here are some of the largest providers of consumer tires.
BJ’s Wholesale Club Inc.
147 of BJ’s 206 stores have tire centers.
Brands: Michelin, BFGoodrich, Uniroyal
Costco Wholesale Corp.
470 warehouses in the U.S.
Brands: Michelin, BFGoodrich, Bridgestone
Wal-Mart Stores Inc.
Nearly 2,500 of 3,400 supercenters and 471 discount stores have a tire and lube center.
Brands: Nitto, Kumho, General Tire, Goodyear, Michelin, Douglas Tires (a Walmart private brand made by Goodyear), Dunlop and Bridgestone; Walmart says its assortment of brands varies by store.
648 stores in the U.S.
Brands: Michelin, Goodyear, Pirelli, BFGoodrich
Kmart and Sears
979 Kmart stores and 717 Sears stores in the U.S. and Puerto Rico.
Seven Sears Auto Centers operate in Kmart stores.
668 Sears Auto Centers operate in association with, out of or independently of Sears stores.
Brands: Goodyear, Michelin, Continental, Kumho, Dunlop, Hankook, BFGoodrich, General, Uniroyal, Nankang, Nanco, Riken
Pep Boys – Manny, Moe & Jack
803 locations in 35 states and Puerto Rico.
Brands: BFGoodrich, Continental, Cooper, Falken, Hankook, Michelin, Pirelli, Carlisle
To see the 2015 Modern Tire Dealer 100 chart, click here.