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MTD 100 exclusive! STS President Caulin talks growth, the high cost of doing business

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MTD 100 exclusive! STS President Caulin talks growth, the high cost of doing business

In this, the last in our exclusive Modern Tire Dealer 100 CEO interview series, Bill Caulin, president of Bound Brook, N.J.-based Somerset Tire Service Inc. (STS), discusses the company's growth strategy, the impact of the recession on his dealership, hot-button issues like tire aging, and more.

With 115 stores as of May 1, the cut-off date for the 2009 Modern Tire Dealer 100, STS is the fifth largest independent tire store chain in the U.S.

MTD: Bill, can you bring us up to speed on what’s been happening at STS?

Caulin: It’s been business as usual. Last year we celebrated our 50th anniversary. And 2007, fortunately for us, was our best year ever. That trend has been in effect for a while. 2006 was the previous record, 2005 was the previous record… we have had steady growth scenario for a number of years, in sales, profit and employee growth. It’s been steady; it hasn’t been in recent years via large acquisitions. The last significant acquisition we had was six or seven years ago, when we bought 20 stores on Long Island. It’s pretty much been smaller acquisitions or organic growth.

MTD: By organic growth, do you mean brand new stores?

Caulin: Yes. We’ll acquire one or two locations from an independent operator or we’ll buy land and build or convert a building.

MTD: What’s been your ratio of brand new stores to acquisitions?

Caulin: We’ve done a lot of both over the years. We have 115 locations now. Most of them are company-owned, although we have a lot of leased properties, which have come through acquisitions. But I would say 50-50 would be a good guess.

We go through a constant process of adding and closing stores. We refine along the way, not just add. The underperforming ones we have closed. We probably have anywhere from five to 10 in the organic category that are on the drawing board.

In this neck of the woods, bringing a property from the time you acquire it to opening for business can be a long proposition.

MTD: All of your stores are still in the New Jersey/New York/Pennsylvania region. Do you have any plans to expand out of this area?

Caulin: Yes, we’re running out of territory. If you go east, we’re in the Atlantic Ocean, so we have to go west, south or north. We’re doing a lot more in Pennsylvania. We don’t have imminent plans, but I think we’ll be going south toward Delaware and Maryland.

MTD: You mentioned that you’re targeting smaller outlets for acquisition…

Caulin: They seem to be the easier ones to do, although they’re just as time-consuming as the bigger ones from a legal documentation perspective. But there’s only x amount of the larger chains out there and we’re competing with the normal cast of characters for those bigger ones.

We certainly have an appetite for the larger chains -- larger being north of 10 stores -- but there is a finite number of them and a finite number of people competing for those.

MTD: How difficult is it to obtain financing for acquisitions given the economy and current credit crunch?

Caulin: Generally speaking, it’s probably fairly difficult. That said, for the stronger players, I don’t think it’s a problem at all. I met with my bankers recently and in their mind, we can’t grow fast enough. We have an extremely strong balance sheet and an extremely strong record of strong cash flow, so the banks are ready to roll with us.

MTD: Have you been forced to put any plans on hold due to economy?

Caulin: Actually, no. In a funny way, (the recession) is not all bad news, if you think of it in terms of a correction. Thing were getting a little overheated in all areas of the economy. Consumers had super-high levels of confidence, so they were buying two or three cars, all new, which didn’t require service. And commercial real estate values were very overheated. So some of that is coming down dramatically and is presenting us with some good opportunities.

As far as the pain that the car dealers and manufacturers are going through right now, their pain is going to be our gain. We’ve already acquired some of them and have converted them to STS stores already, and have a number of other ones we’re looking at.

MTD: We once quoted you as saying “I don’t believe in long-term budgets or formal business plans because you don’t know how real they are.” Can you elaborate on that? Has this become even more the case due to severity of the current recession?

Caulin: I want to stay very nimble. If you get to the position where you have formalized five-year plans and stuff like that and then you start to build programs around that, you become a slave to the plan. Just to hit a new outlet goal, you may go out and overspend for it, or you may do acquisitions that don’t make sense.

We will go as fast or as slow as the opportunities make sense to us. We have significant lines of credit that are unused right now and can be expanded three- or four-fold if opportunities present themselves.

Over the years, you hear a lot of lofty business plans thrown around. The beauty of being privately held is we can grow at a pace that’s comfortable. When real estate prices were up a couple of years ago, we slowed down. I didn’t want to pay a million dollars for real estate. As that gets corrected, our hunger may be building a little bit.

MTD: I want to shift gears and discuss your clearance store concept. You have two clearance centers now. How has the concept been accepted?

Caulin: I would give (the concept) a fair rating. On the one hand, when you’re in an economy like this and people are looking for value, it has its place. But if you take a higher level look at it and evaluate the whole tire aging issue and stuff like that, selling older merchandise may not be the best thing. We’ve had a little bit of success, but certainly nothing that we’ll be expanding on.

MTD: What is your company’s position on tire aging? Do you have a policy in place?

Caulin: This is a hot issue. If you look at the Rubber Manufacturers Association, they would rather have, I think, a national standard. The danger we’re getting close to is that individual states are starting to do their own thing.

I think it’s a big, big mistake if states or companies individually come up with their own standards. Our customers are going back and forth across state lines all the time. How are you going to have one standard in Pennsylvania and another standard in New York? The consumer is going to go to the least common denominator and litigate based on that. The industry has to do something.

MTD: STS has always been extremely aggressive in terms of marketing. Can you describe some recent and/or current initiatives and how they have benefited STS?

Caulin: We’ve never been a discounter or a price leader. Our mantra is “STS: It’s a Trust Thing.” We like to shout that we are a trustworthy, honest (company) and a very solid, if not better, alternative to the car dealers… a premium service provider. We’re always trying to build the brand rather than (hand out) the freebies.

MTD: What’s the biggest challenge facing STS as we move forward?

Caulin: The economy is what it is. New Jersey is probably the least business friendly state and one of the highest tax states. This state has done a very poor job… our taxes and over-regulation are very significant problems.

"But you always look for the silver lining," he continues, "and that would be we’re already here and we’re very successful, and if any other national players want to come here, good luck! There is a very high cost of entry."

For more information about STS and other tire dealerships that made this year's Modern Tire Dealer 100, see the July issue of MTD, available now!

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