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Climbing the ladder

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Climbing the ladder

Despite operating in the worst economic environment since the Great Depression, the nation’s largest independent tire store chains are holding their own.

Some have even managed to grow their store count, a remarkable achievement in light of the current credit situation.

Of the independent tire store chains that appeared on last year’s Modern Tire Dealer 100, 35 added locations over the last 12 months, including seven out of this year’s top 10.

Mount Kisco, N.Y.-based Mavis Discount Tire reported the largest increase, jumping from 56 to 114 stores thanks to its acquisition of Cole Muffler & Brake during the fourth quarter of 2008.

Although the Syracuse, N.Y.-based Cole Muffler marketed itself as a muffler shop, it has always carried tires. The transaction placed Mavis in this year’s top 10, a first for the family-owned dealership.

Tire Kingdom Inc., number two on the 2009 MTD 100, reported the second largest increase: 55 outlets, the vast majority of them new stores.

Discount Tire Co. Inc. remains number one on our list with 744 stores, 46 more than last year.
According to MTD research, 17 dealerships on last year’s MTD 100 reduced their number of stores. Big 10 Tire Stores Inc. experienced the most significant reduction, dropping from 101 to 83 stores.

Mobile, Ala.-based Big 10, which is owned by Sun Capital Partners, filed for reorganization under Chapter 11 earlier this year.

The company recently sold its operations to a newly created entity called New Big 10 Tire Stores Inc.

The vast majority of the rest of the 2009 MTD 100 that have downsized since last year reduced their store counts by one outlet.

In addition to those chains that boast the same store count as 12 months ago, five dealerships joined the MTD 100 in 2009. They include Las Vegas, Nev.-based Morpheus Investments, dba Tire Works Total Car Care (13 stores); Atlanta, Ga.-based Nextire LLC (13 stores); Columbia, Mo.-based Bore/MPC LLC, a Big O franchisee (12 stores); Plano, Texas-based RimTyme (11 stores); and Indianapolis, Ind.-based Indy Tire Center Inc. (11 stores). Indy Tire Centers barely missed the 2008 MTD 100.

Each year for the MTD 100, Modern Tire Dealer asks dealerships to list the tire brands they carry, both consumer and commercial.

Seventy-six dealers on the MTD 100 (actually 103 because of a six-way tie for 98th place) sell the Goodyear brand, making it the most popular brand on the list. Seventy-five dealers report selling the Michelin brand. Here’s a breakdown of the five most popular brands this year:

Top five brands, MTD 100 (as listed by dealers):

                         2009     2008

1. Goodyear       76         71

2. Michelin          75         74

3. BFGoodrich    64        61

4. Dunlop            54        52

5. Bridgestone   52        46

In total, 99 different brands appear on the 2009 MTD 100. This year’s list also contains more Chinese-made brands than previous editions, including names like Double Coin, Sailun, Techking and others.

In this special report, we will examine the largest independent tire store chains in the U.S.  Our analysis will include an in-depth look at the top five dealerships, plus interviews with several top executives, a first for our MTD 100 coverage.

Dealerships are ranked according to the combined number of retail-only, commercial-only and combination retail/commercial outlets.

We also have listed the number of wholesale outlets per dealer, if available. All information on the list was as of May 1, 2009. (See charts in the Industry Resources, Research & Statistics section of this Web site.)     ■

#1 -- Discount Tire: 744 and counting

Bruce Halle knows what it is like to be a small independent tire dealer trying to survive. He opened his first store in Ann Arbor, Mich., in 1960 with $400 — in borrowed funds.

His philosophy was to focus on customer satisfaction. His goal was to sell five tires a day.
Forty-nine years later, Halle’s philosophy may not have changed, but his business plan sure has.

With 744 stores as of May 1, 2009, the company holds the top spot on the Modern Tire Dealer 100 list. (The company has since reached the 750-store mark.)

Discount Tire Co. Inc. sells close to 54,000 tires a day (not counting Internet sales on Discount Tire Direct), according to MTD estimates. Per outlet, that’s 75 tires a day, or 15 times his original goal.

Only 28 states to go! Idaho is the latest

Halle is the public persona of the privately held company. As chairman, he oversees the largest independent tire store chain in the world.

Discount Tire’s total tire and wheel sales in 2008 were $2.4 billion. It sells 41 tire brands.

The grand opening of its first store in Idaho in May gave the Scottsdale, Ariz.-based company a presence in 22 states. It does business as America’s Tire Co. in Oregon and parts of California.
Gary Van Brunt has been vice chairman of the company since 2004. At that time, Tom Englert replaced him as CEO.

Van Brunt started working part-time for Discount Tire in Ann Arbor in 1970. Englert joined the company in June 1975.

In 2008, Forbes listed Discount Tire as the 193rd largest private company in America.

Aggressive advertising includes race sponsorships

In addition to its aggressive television and newspaper advertising, Discount Tire is involved in racing sponsorships. The company helps support NASCAR Nationwide Series driver David Ragan and the No. 6 Discount Tire Ford Fusion car.

Discount Tire also is a long-standing North American drift supporter. The company is not only the “official tire and wheel retailer” for the 2009 Formula Drift Professional Drifting Championship Series, but also the co-sponsor of the Discount Tire/Falken Tire Lexus IS350 drift team.    ■

#2 -- Tire Kingdom unveils new format

Despite the struggling economy, Tire Kingdom Inc. is on a roll. Part of TBC Retail, the chain added more than 50 stores over the last 12 months. And this month, Tire Kingdom is deploying its new Service Central automotive service program, which encompasses its National Tire & Battery (NTB) and Merchant’s Tire brand stores, as well as TBC Corp.’s Big O Tires Inc. franchise store network. “We tried to find a common name that would draw all the brands together,” says Tire Kingdom CEO and President Orland Wolford.

MTD: What’s the concept behind Service Central? Do you think your stores are simply seen as tire shops, not places where customers can take their cars for maintenance or repairs?

Wolford: No. In fact, our service business at NTB and Tire Kingdom has expanded immensely. It’s to let customers know that Service Central is a nationwide program. If you have service work done at a Big O store in San Francisco and for whatever reason have some work done at an NTB store in Chicago, that warranty is covered by the national Service Central brand.

MTD: Will warranties cost extra or are they part of the Service Central package?

Wolford: Each service will have its own warranty.

MTD: Have you branched out into any new markets in the past year?

Wolford: No. We’re filling in the markets we’re already in. Collectively, between our company-owned retail stores and Big O stores, we’re in 42 states.

MTD: How is the recession affecting your operation? Has it been difficult to obtain financing for new stores?

Wolford: We have no financing issues. We continue to look for acquisitions that make sense for us and we’re continuing our new store program this year without any concerns about financing.

MTD: What mechanisms are in place to prevent TBC from building stores on top of each other?

Wolford: Tire Kingdom is basically in the south, Merchant’s is in the mid-Atlantic states, and NTB is in the northeast, midwest and southwest.

If we’re already in a market under one brand, it only makes sense to expand that brand.    ■

#3 -- Les (as in Schwab) is still more

Les Schwab died in 2007, but the company that bears his name lives by the same philosophies he advocated. “We pay enormous respect to everything Les developed,” says Dick Borgman, CEO of Les Schwab Tire Centers. “The fundamentals he developed got us this far and they make sense for the future.”

Les Schwab Tire Centers, now based in Bend, Ore., has grown its store count nearly 20% in the last five years. It posted sales of more than $1.6 billion last year.

We caught up with Borgman in early June after his trip to Washington, D.C., where he testified in opposition of trade restrictions on imported passenger and light truck tires from China.

“Consumers are entitled to choices,” he told the U.S. International Trade Commission. “Without Chinese and other foreign tire brand suppliers, we could not fill our showrooms with private brand products or satisfy consumer demand.”

MTD: What is your store count? Do you plan to open more stores this year?

Borgman: We currently have 353 company-owned stores and 70 member-dealer stores. We hope to open five to seven new ones this year, although that depends a lot on the timing of the building approval process.

MTD: How would you describe your overall sales in May and June compared to last year at the same time?

Borgman: Sales for May were a little soft, but we have been improving so far.

MTD: Tire aging is a hot-button issue. What is your company’s position on tire aging?

Borgman: On tire aging, we are working with the Tire Industry Association to initiate a discussion in the industry about overall tire maintenance and safety, of which tire aging is only one factor.

MTD: What’s the biggest challenge facing Les Schwab Tire Centers as it moves forward?

Borgman: Probably the biggest challenge we face right now is keeping up with all of the regulations affecting our business. Much of the regulations relates to the development of new stores, but more recently, industry-related proposals such as tire aging, rolling resistance and import restrictions all require more effort.     ■

#4 -- Monro heads west with 26 new stores

Steady, controlled growth has enabled Bound Brook, N.J.-based Somerset Tire Service Inc. (STS) to remain “nimble,” says President Bill Caulin. “The beauty of being privately held is that we can grow at a pace that’s comfortable.” Caulin says STS is always on the look-out for expansion opportunities.

MTD: You have 115 stores. What has been your ratio of new stores to acquisitions?

Caulin: We’ve done a lot of both over the years. I would say 50-50. We go through a constant process of adding and closing stores. We refine along the way, not just add. We probably have anywhere from five to 10 (new stores) that are on the drawing board.

MTD: All of your stores are in the New Jersey/New York/Pennsylvania region. Do you have plans to expand out of that 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 dealerships for acquisitions...

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 meaning those north of 10 stores — but there’s a finite number of those chains and a finite number of people competing for them.
I met with my bankers recently, and in their minds we can’t grow fast enough.

MTD: What’s the biggest challenge facing STS as the year continues?

Caulin: Well, the economy is what it is. And New Jersey is probably the least business-friendly state with one of the highest state taxes. That’s the bad news.

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

#5 -- Somerset prefers 'steady' growth

At the cut-off date for the 2009 MTD100, May 1, Monro Muffler Brake Inc. had 154 tire stores. In late June, it added 26 stores to that total by acquiring the St. Louis, Mo.-based Autotire Car Care Center chain from American Tire Distributors Inc. (ATD) for $10 million. “It’s ATD’s philosophy not to compete with their customers, so they were looking to get rid of a non-strategic asset,” says Monro Chairman and CEO Rob Gross. St. Louis is a new market for Monro, which is based in Rochester, N.Y.

MTD: What made the Autotire stores attractive to Monro?

Gross: They have the number three store density in the St. Louis market without us doing anything. The stores are doing $1.2 million in sales per unit, which is a very attractive sales run rate that we hope to build on.

MTD: Is St. Louis as far west as Monro goes?

Gross: That’s as far west as we go and probably as far west as anyone should expect us to go. We’re interested in filling in (the St. Louis market) and that also opens up the possibility of more stores in Indiana and Illinois.

MTD: Will you keep the Autotire name or switch the stores over to your Mr. Tire brand?

Gross: We’ll keep the Autotire name. It’s a well-established brand with a lot of equity.

MTD: Has your acquisition strategy changed, especially in relation to the economy?

Gross: Absolutely nothing has changed. We’re looking to buy reasonably priced assets that either fill in our markets or are in contiguous markets where we can have significant store density and can get some leverage off of our business model with distribution, advertising and store operations. Our balance sheet is really strong.

MTD: Many retailers are reporting that customers are flocking to lower-priced tires. Are you seeing this trend at your stores?

Gross: In a bad economy, people trade down. Within categories, our customers are trading down. Maybe they were a high-end, major brand customer... now they may be moving down to a private brand tire. They’re trying to save money where they can.    ■

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