'Their kind of town, Chicago is': 'Windy City' dealers achieve success through service in one of the nation's most competitive markets
Selling tires as an independent in Chicago can be just as tough and demanding as the city itself. Customers can be stubborn, and competition from rival operations is remarkably intense.
Goodyear Tire & Rubber Co., through its Just Tires chain, and Firestone Tire & Rubber Co., with numerous company-owned stores, have a major presence in "The Windy City," as do Pep Boys, National Tire & Battery (NTB), Costco and other operations.
But with more than 1.2 million cars and tens of thousands of light trucks and semis traveling 3,775 miles of street and nearly 65 miles of expressway, Chicago also offers hard-working, enterprising dealers plenty of opportunities to turn handsome profits.
"There aren't enough service bays here to take care of all the cars," says Rich Lucas, owner of long-time Chicago dealership Lucas Tire Co.
But the city has an abundance of independent tire dealers who are fighting for a piece of the action, making it one of the nation's most competitive markets.
"We've been a mature market for a long time," says Lucas, whose single-location dealership is located in Roscoe Village, a neighborhood on Chicago's near north side.
"This is never gonna be a place where one group will control the whole town." But that hasn't stopped major companies from trying.
Lucas, 60, started Lucas Tire in 1981, after working for another tire dealership following a 10-year stint managing a Firestone store in Chicago. He sells General, Goodyear, Kumho, Sigma, Bridgestone, Michelin and other brands ("I'm not direct with anyone").
"This was an independent dealer's market when I opened up. But it's changed dramatically."
NTW, now known as NTB, entered Chicago during the mid-1980s and "caused problems" by low-balling prices on top-tier brands. "They wanted to be big hitters in the high performance business but they weren't making money and slashed advertising."
But that may change as Memphis, Tenn.-based private brand marketer TBC Corp., which is in the process of buying NTB from Sears, Roebuck & Co., has announced big plans for the chain. "We could add at least 20 stores to the Chicago market," TBC President and CEO Larry Day said after the acquisition was announced in September.
"Costco and Wal-Mart weren't here in the 1970s," says Lucas. And car dealerships weren't a factor. "But Ford has done a great job with its 'Around-the-Wheel' program and General Motors is starting to get into tires.
"Just Tires has done a good job. Firestone stores have been trying to pick up volume. They'll offer free balancing and valve stems, and they don't seem to have a bottom on how low their tire prices can go."
Lucas says customer expectations have changed. "The current generation of buyers is extremely service conscious. Husbands and wives are both working; nobody has any time. In the old days, a guy would give us his keys, ask, 'Where's the neighborhood tavern?' and would come back in an hour to pick his car up."
When Lucas Tire opened, Roscoe Village was a working-class neighborhood comprised of German and Norwegian immigrants. As real estate prices skyrocketed, many blue collar residents moved away and were replaced by upwardly mobile professionals "who are very high maintenance. They expect us to do a lot more for them. If we close at six and they want to pick their car up at seven, they expect us to stay open. They're very into themselves."
They also expect the dealership to compete with major chains when it comes to hours of operation, prompting Lucas to extend his weekday hours and open his doors on Sunday, "which has become a gigantic shopping day."
"We'll do anything to keep a customer happy," he says. "Yesterday a guy dropped off his car at 6 p.m. with a brake problem. He lived fairly far from here, so we gave him $30 and ordered him a cab."
Lucas rents at least two cars a week for customers through a nearby Enterprise lot and picks up the tab. He gives coupons from neighborhood restaurants and car washes to big-ticket buyers and offers four oil changes for $25 through his "Oil Change Club."
"As an independent, we discount our service more than a chain can. We don't have the deep pockets to spend on advertising." Lucas also sends out regular maintenance reminders and personalized "thank you" letters.
Lucas Tire is placing more emphasis on automotive service, which helps offset shrinking tire volume and margins. In 1981, the dealership sold 2,500 tires per month, both retail and wholesale. Now the company is lucky to clear 1,500 retail units a month (Lucas Tire exited the wholesale business in the mid-1990s due to dwindling margins).
"All Chicago tire dealers face the same thing: Most customers don't know we offer automotive service," he says. "That really hurts our business.
"But for small independent dealers to survive here, they need to tend to things that make their business profitable. You can't be all things to all people."
Survival of the friendliest
Municipal Tire & Wheel Co., an 80-year-old dealership located on Chicago's near south side, also has cultivated alternate income streams to stay competitive.
Municipal, a single-outlet operation, entered the tuner market five years ago -- "too early," admits owner Sid Rotman. At the time, the California-based craze had yet to gain a foothold in the Great Lakes region. "We were sitting on products that were hot on the East and West Coasts but weren't moving here."
The fad eventually caught on and Municipal's tuner business is now booming. Rotman sells a wide range of high performance tires, including Kumho and Nitto products, plus wheels from Konig and other companies. Municipal also promotes the Dean and Vogue brands.
Rotman hangs homemade flyers on his spacious showroom's display racks that list prices for various tire and wheel packages. "Some people want a particular look," he says. "Other people just want a custom wheel."
Municipal also wholesales to an extensive list of retailers throughout the city. "We have two delivery trucks and keep a vehicle for 'hot shot' deliveries." Business has been great. "I'll be here at the office at night doing paperwork and the phones will still be ringing." Sid's eldest son, Mike, runs Municipal's wholesale division; a younger son, Marc, specializes in retail sales. Municipal tries to turn its wholesale inventory at least six times a year.
Sid's father, Morris, took over Municipal Tire in 1925 after buying out his partner's share. Sid worked in the business as a child and later, a teenager. "I had other jobs but always came back here." In 1967, while working for another tire dealership, he decided to make a serious commitment to Municipal. "Dad said, 'Give it a try and see if it's right for you.'"
Sid took over for Morris, who was in his 60s at the time and slowing down. Competition was fierce. "At that point, there were almost 10 big, prominent dealerships within walking distance. But little by little, our business grew. We started to sell more products and offer more service."
Chicago's near south side has undergone drastic transformations since Municipal opened. Once a hub for the city's underworld in the 1920s and the site of violent race riots some 40 years later, it's becoming gentrified like other Chicago neighborhoods. "People are moving back in at incredible rates. For the most part, they're upscale. But I still have a huge mix of customers," including blue-collar people who live in adjacent areas.
Customers respond to the same stimuli regardless of income or socioeconomic status, according to Sid. "The first thing you have to do is make them comfortable," he says with conviction. "And you can do that in 10 seconds! It's a smile, tending to them the right way, asking them questions. If they believe you care about them, you'll be a winner."
A matter of trust
"Over 109,852 tires installed" reads the marquee outside Ashland Tire & Auto Clinic, a single-location dealership in Lakeview, a neighborhood of more than 90,000 people on Chicago's north side.
Lakeview is one of the city's wealthiest sections, where the average median income is close to, if not more than, six figures and rent for a modest one-bedroom apartment can run up to $1,800 a month.
Most of Ashland Tire's customers drive high-end vehicles "and nine times out of 10, they have a second one," says co-owner Ken Papas, whose 16-year-old shop sits a couple of blocks away from Wrigley Field, home of the Chicago Cubs. "We have more BMWs and Porsches rolling through here on a weekly basis than any other dealership in Chicago."
Most of the cars Ashland Tire sees are less than 10 years old. "We don't work on many '79 Buicks," says Jack Gordon, Papas' partner.
A good percentage of the dealership's customers also drive expensive, top-line SUVs, which has forced Papas and Gordon to adjust their stock to cover the explosion of light truck/SUV tires and sizes. "Ten years ago, you had eight or 10 sizes that covered the whole market," says Papas. "Our inventory balance has shifted." Cooper, Continental and Michelin make up the dealership's main lines.
Service speed is the number-one demand made by time-starved Lakeview residents, which is just a few minutes' drive from Chicago's bustling downtown business district. "They all want to know, 'How quickly can you install my tires?'"
Besides residents' plentiful discretionary income, operating in the neighborhood has other advantages. "We're in the high-rent district," says Papas. Mass merchandisers and other competitors "can't afford to be here. Plus, in the inner city, people spend all of their money within a five-mile radius. They're not worried about saving $2 or $3 by traveling an extra seven or eight miles out of the city. We probably have more people in a five- or six-block area than dealers in other parts of the country have in a half-state area."
Ashland Tire doesn't cater to penny pinchers by emphasizing price in its ads "and never has," says Papas. "Any of the advertising we do is strictly for name awareness. The object of advertising is to get people in the door. If we can get the phone to ring, then we can win the lion's share of the battle."
Papas and Gordon don't run loss leaders like $10 oil changes either. "We don't believe in it," says Papas. "It portrays a negative image." He attributes part of the retail dealership's tremendous success to the tenure of his employees. He and Gordon employ seven people, most of whom have been with the company more than 10 years. One employee, Martin Armigal, has worked for Ashland Tire since the day it opened. "When customers come in, they see the same people," says Papas. "They build up a trust; there's a comfort level. That's the result of playing the game the right way. We tell people, 'We don't have to sell you something you don't need.' In fact, we brag about it!"
"We look at (customers') cars as if they were our own," says Gordon. "'What would we want done?' That's how we address it."
The strategy works. "They're very trustworthy," says former Lakeview resident Sandy Paul, who now drives across town to buy tires from Ashland. "I send people here all the time and I've never heard any complaints."
While some sections of Chicago are rebounding, just as many -- if not more -- remain depressed. Like other industrial Great Lakes cities, traditional manufacturing jobs are disappearing, only to be replaced by low-paying service industry positions. Many dealers are feeling the impact of this economic shift, including Roy Lago, co-owner of Harlem-Addison Tire & Auto Inc., a 34-year-old facility on Chicago's northwest side.
"Business has been terrible," says Lago, who runs the operation with his brother, Andy. "A lot of people around here have lost their jobs."
Harlem-Addison was founded by Roy and Andy's father, Louis Lago, who had owned several service stations prior to opening the single-location dealership. "I don't see the economy turning around anytime soon," says Roy with a shrug.
Harlem-Addison usually sells one or two tires at a time and only inventories about 50 units, all one brand (Kelly) and all displayed in its small showroom. "I think we sold one full set this week," as opposed to 20 years ago, when the dealership typically sold four or five sets a day.
The Lagos' older customers are still loyal, according to Roy. "But the younger people shop around for the lowest available price. They don't even ask if you can do the work! The first thing out of everyone's mouth is, 'How much?'"
Harlem-Addison has tried to make up for lost tire sales by pushing automotive service. The three-bay dealership offers brake and front-end work, electrical work, radiator and heater core repair and replacement, computerized tune-ups, strut and shock replacement and towing. In April it started selling scooters at the suggestion of Andy, "who is a big (motorcycle) fanatic," according to Roy. "We've been able to turn a profit with them. They're easier to sell than tires!
"I hate to be a prophet of doom and gloom, but I don't see much of a future for independent tire dealers. Mass merchandisers and price clubs -- even Goodyear and Firestone (stores) -- have taken the profit out of it.
"Years ago, you could make a good profit selling tires. Now we're giving them away at $5 or $6 over cost."
One of the biggest challenges in Chicago is "trying to make people realize the difference between a name tire and any old tire," says Jim McHugh, owner of Tire Town, a large dealership on the city's west side.
McHugh ran a Firestone store in nearby Cicero, Ill., before opening Tire Town nine years ago. He joined Goodyear's Gemini program four years ago and heavily promotes the Goodyear brand. "In recent years, Goodyear has made its associate brand tires available to us," which now comprise a greater percentage of his tire sales than flag brands.
There are a number of tiny storefronts within a two-mile radius of Tire Town that deal in used tires. "It poses some competition because a lot of our customers are low-income."
Tire buyers in the area tend to shop around and some have convinced themselves that unusually low prices should be the norm. "Back at Firestone, we were the first (in Chicago) to do '4-for-$99.' Now tires sell for even less! And that's what people expect when they walk in." Recently one of McHugh's customers was shocked to discover that one Goodyear tire would cost her $50; she expected four tires for that amount.
There hasn't been much consolidation at the retail level in Chicago, according to McHugh. "But tire margins have been shrinking slowly but surely each year due to increasing price pressure." He admits he hasn't felt the impact of price increases announced earlier this year and late last year either.
Repairs are what really keep McHugh's operation afloat. "That's been our focus since Day One." Automotive service -- up to and including engine and transmission jobs -- makes up 75% of his total sales. All of his techs are ASE-certified; three have attained master tech status. "The crew I have has been together for about five years." McHugh recruits less experienced techs from trade schools and finds veteran service technicians through "Help Wanted" ads.
"Our techs are big on preventive maintenance. They're good at recommending services as they see fit."
Competition will continue on Chicago's west side, he says -- but mostly from fellow independents already in business. "I think the tire market is saturated." High real estate rates and taxes will make it cost-prohibitive for most big chains to set up shop nearby, he believes. However, Wal-Mart has broken ground for a store that will be built right behind his outlet.
One dealership that has adapted well to difficult economic conditions is Lester's Tire Service, a small, single-location outlet on Chicago's famous Division Street. The eight-year-old company had its best year ever in 2002 and is on track for a profitable 2003.
Lester's Tire caters to low-income and working-class clients by stocking and selling a wide range of used tires. A standard 15-inch used passenger tire normally sells for $25, everything included, according to Lester Kurzac Jr.
Kurzac is just 19 years old but is responsible for most of the company's daily operations. (His parents, Lester Sr. and Margaret Kurzac, own the shop.)
People in his area prefer doing business with smaller companies "because we can save them money. I can do the same amount of work as a Pep Boys but for less." In addition to tending the sales counter, Kurzac also turns wrenches, along with two other techs. "I like getting my hands dirty."
He's learned through trial and error that certain services, like brake jobs, are more profitable than others. "I'm not spending any money on brakes; it's all labor." Transmission repairs are another story. "They take too much time and take up too much room."
Kurzac also stocks used wheels ("mostly for spare tires") and hubcaps, though fewer hubcaps than in the past. "Now all you see are rims." He also sells new high performance tire/custom wheel packages at good mark-ups.
Kurzac predicts continued success. "I'm honest with my customers. I don't cheat them; I fix whatever they want to have fixed.
"A lot of my peers see me driving my Escalade (SUV) around and think I must be a drug dealer. But I work for everything I have. Business gets better and better each year."
Rise of the cheapskates?
On the far north side of Chicago, R.A.S. Tire Repair & Sales Inc. is completely bucking the trend toward more automotive service. R.A.S. doesn't work on cars and probably never will. "We're 100% tires," says owner Bob Schulz, who opened the store in 1995. He sells General, Goodyear, Spartan and National brand products. "Tires are easy, in-and-out. I like doing them." Schulz's service area is as bare-bones as it gets -- just an outdoor drive-up bay in a narrow alley behind his tiny, crowded shop.
R.A.S. is located in Norwood Park, a high-traffic area with Goodyear and Firestone-owned stores and a Pep Boys outlet nearby. "Most of my customers are 40 to 65 years old and middle class. We take our time and let them watch what we're doing.
"A lot of them like the way we clean and hand torque their wheels. We make sure a car is perfect before it leaves. We don't like comebacks."
Schulz and his two employees change tires on 60 to 70 cars a week. "I only work on appointments," he says. "The big advantage is that you know when everyone's coming in" -- critical for a small shop with limited space and resources.
The soft-spoken Schulz has observed several changes in his customers' buying habits over the years. "Nobody likes to buy top-line tires anymore." A growing number of customers shop around by phone and some take several days to call him back, which he admits is frustrating.
Some buyers have become so frugal that they will ask him to insert inner tubes in their punctured casings in lieu of proper repairs. "I try to sell them a used tire instead." But even the dealership's used tire business has taken a pounding thanks to the proliferation of competitors' "4-for-$99" deals.
Schulz also says that customers in general are less knowledgeable about tires than in the past. "I have guys coming in with wires hanging out of their tires and they want to flip it. It's scary."
Fortunately, Schulz's customers still see the value in tire repairs, which he enthusiastically promotes. He instructs his staff to take their time with repairs; it's not unusual for a plug and patch job to take 20 minutes. "We check the rim, the valve, everything." R.A.S. typically charges $10 per repair and pockets around $9. "We never turn anyone away."
Like their counterparts in the retail business, Chicago's commercial tire dealers are fighting customer thriftiness, deteriorating margins and competition from major tire manufacturers. "In the city you get (hit) from every angle -- the big guys like Goodyear and Michelin, other dealers, everybody" says Dan Sickafoose, president of Chicago Bandag, which also does business in Wisconsin, Michigan and Indiana. "We beat each other up good."
Sickafoose says Chicago Bandag enjoys 35% to 40% share of the metropolitan Chicago commercial market, including the city's suburbs. He estimates the area still supports about 25 independent commercial tire dealerships. "But a lot have gone out of business and some have been bought out."
Chicago Bandag, which was started 41 years ago by Dan's father, Frank Sickafoose, has made a half dozen acquisitions over the last 10 years, its most recent being TireWorks in nearby Palatine, Ill., last year.
Chicago customers are tougher than clients in the company's other markets, according to Sickafoose. "Large trucking fleets want the whole package: tires, service, reports, casing evaluations, cost-per-mile. They're smart and they know which tires to put on.
"Then you have fleets like landscapers and construction outfits who aren't quite as sophisticated but still know what they want. And they're all tough on you if you don't do the job right."
Chicago Bandag has taken on more national account business in recent years. "We hate the margins but the credit risk is minimal. The manufacturers are responsible for the money."
"The Windy City" is still a big railroad town; Chicago Bandag services intermodal customers out of two offices set up at railyards.
The dealership sells twice as many retreads as new truck tires in Chicago (its new tire brands include Michelin, Bridgestone, General and Yokohama). Sickafoose says the gross profit on retreads is twice as much as a new tire. Chicago Bandag is the seventh on Modern Tire Dealer's Top 100 Retreaders in the U.S. list, with seven shops that produce 1,200 medium truck and 250 light truck tire retreads a day.
Yet the company is making less and less selling retreads. "New tires are driving retread prices down," says Sickafoose. "That makes it tough to sell a cap and casing at previous prices. We have to compromise somewhere in the middle."
Services like on-the-road repairs help make up the difference, but customers pay top dollar for the courtesy. "We've raised our service rates three times in three years." Chicago Bandag runs nearly 50 service trucks in and around Chicago. It charges $65 an hour for road service work during the week; after 5 p.m., customers pay $90 an hour. "If we go out on a Sunday, it's $120 an hour, minimum."
Chicago traffic jams often prevent service trucks from reaching their destinations right away. "It takes forever to get anywhere around here," says Sickafoose. "That's why we charge by the hour. Sometimes you're spending hours to get there and back."
Chicago Bandag also handles road service jobs for other dealerships that can't make it to downed vehicles, but usually tacks on 10% or more to the price for its trouble. Canton Tire Service Inc., a much smaller commercial tire dealership near downtown Chicago, also pinch hits for fellow dealers who can't or don't want to service trucks in the city. "I know every dealer within a 30-mile radius," says Canton Tire President Ben Shapiro. Shapiro bought the company from original owner Henry Robbins 15 years ago.
"Twenty years ago, there was an independent commercial tire shop here and here and here -- the whole city was covered." Now he finds himself competing with large dealerships like Pomp's Tire Service and manufacturers like Goodyear.
It's hard to match discounted prices as a smaller business, according to Shapiro. But being little does have its advantages. "There are tons of customers who don't want to deal with the giant outfits," he says. "You call us and either myself or Tony Cardinale, my service manager, will answer."
Shapiro sells less-expensive truck tires like Double Coin, Kumho and General instead of flag brand products -- with good reason. "I don't have any fleets that are brand loyal. They're not looking for a $300 or $400 tire."
Canton Tire's size also allows it to target clients with fewer wheel positions. "I want the furniture store around the corner with two trucks. These are the customers the big guys won't go after."
"There is every size and shape of customer in Chicago that you can imagine," says Jerry Bauer, president of Bauer Built Inc. The Durand, Wis.-based dealership entered the Chicago market nearly two years ago with a new commercial tire center and retread plant in Romeoville, Ill., a southern suburb. "And the physical size of the market sets it apart from any other market we do business in."
Bauer echoes the sentiments of other Chicago dealers -- retail, commercial and wholesale -- when he says that continued success in the market will hinge on "good service, competitive pricing and (being) someone customers can trust."
Chicago's industrial tire dealers jockey for position: Cash-strapped customers demand more for less
Chicago's industrial tire market isn't as profitable or glamorous as other segments, but it's every bit as competitive. As Chicago's economy continues to struggle, independent tire dealers find themselves fighting not only each other but also equipment dealers who sell industrial tires for slices of a pie that's significantly decreased in size over the last two years.
To make matters worse, industrial tires -- particularly forklift tires -- have been reduced to near-commodity status in the eyes of many Chicago consumers, says Joe Hoobyar, president of Metro Industrial Tire & Supply Inc.
Metro has locations in the "Windy City" suburbs of Alsip and Lombard, Ill. "I've been in this 20 years and haven't seen anything revolutionary," says Hoobyar.
Metro and a handful of other industrial tire dealerships -- including T.A.S Industrial Tire & Service, a two-year-old operation based in Melrose Park, Ill., another Chicago suburb -- still achieve good margins, but the rules of the game are changing.
"Budgets are such that customers are getting more active in watching their costs," says T.A.S. General Manager Bruce Fate. Fate ran his own dealership, Mid American Industrial Tire, for a number of years before joining T.A.S., which is a division of medium truck tire dealership Commercial Tire Service Inc., also in Melrose Park. (His right-hand man, Charlie Cohen, formerly owned Industrial Tire Brokers, a Chicago mainstay for 20-plus years.)
In the past, customers didn't demand many brands; often one or two labels would suffice. Now both T.A.S. and Metro offer good-better-best options within multiple brands. T.A.S., in no particular order, sells Monarch, Tolteca and Continental brand products; Metro's line-up includes the Watts, Solideal and Maine labels.
Customers also expect more value-added services like fleet inspections, according to Hoobyar. His salesmen inspect customers' forklift tires "as often as we can. We measure the tires and report on conditions and wear." The work is time-consuming and dirty; Hoobyar doesn't charge a penny for it.
Chicago's commercial tire dealers are learning that carrying industrial tires makes them a better supplier to existing accounts. "It opens doors," says Commercial Tire Service President Paul Pavia. "I don't know of too many trucking companies that don't have forklifts."
After a two-year lull in the industrial tire segment, business appears to be picking up. T.A.S. reported its best month ever in June and Metro predicts an up-tick. "There's so much pent-up demand," says Hoobyar. "Customers have put so much (tire buying) off, it's coming to fruition."
He and T.A.S. officials agree that boosting their sales will depend on the continued deliverance of quality products and personalized service. "Chicago is a big market," says Cohen. "The more you're equipped to handle customers, the better off you'll be. If you have the expertise, the gross will come."
Chicago posts consumer 'Bill of Rights': Dealers must display document by law
"Sometimes newcomers to Chicago have a hard time grasping how government in this city works," legendary Chicago columnist Mike Royko wrote in 1984. City hall seemingly has a hand in everything, even the car repair trade.
All facilities within Chicago city limits that offer automotive service, including independent tire dealerships, must post the following edict from the office of Mayor Richard M. Daley:
"Before permitting a serviceman to repair your automobile, you should know that any customer is entitled to:
1. A written estimate for repair work.
2. A detailed invoice of work done and parts supplied.
3. Charges which do not exceed 10% or $15 over the estimated price, unless you have given permission.
4. Return of replaced parts, excluding warranty and exchange parts, if requested in writing at the time the work order is placed.
5. A statement on your invoice that all repair work and parts used are warrantied for a minimum of 90 days and/or 30,000 miles, or a statement on your invoice that the work and parts are not warrantied for that amount.
6. The right to inspect the vehicle before payment.
7. The right to state in writing any problem you notice which is directly related to the repair work performed.
8. If a warranty is given, the right to return the vehicle for corrections of problems directly associated with the repair work within the warranty period of
10 days, whichever is greater.
9. Questions concerning the above should be directed to the manager of this repair facility.
10. Unresolved questions regarding service work may be submitted to the Chicago Department of Consumer Services."
Past 'challenges': Different cities, similar opportunities
Since our first "Tire Dealer Challenge" piece on Philadelphia tire dealers in 1986, we have run in-depth profiles on the Dallas, Seattle, New Orleans, San Diego, Los Angeles, Atlanta, Las Vegas, Orlando, Minneapolis/St. Paul, Kansas City, Boston, Portland (Ore.), Akron, Boise, Milwaukee, Vancouver, Denver, Cleveland and Indianapolis markets. This time we address challenges and opportunities for dealers of "The Windy City."
By talking with tire dealers -- and their competition -- within the backdrop of a specific market, we hope to pass along information that will give you a better understanding of how and why your peers are succeeding. That, in turn, will help you run your businesses more efficiently and profitably.
One constant we have found is that profitable tire dealers often follow similar basic strategies in building their businesses.