'Good, better, best' is dead!
Thirty years have brought a lot of changes, a lot of choices, a lot of complexity, and it’s moving towards chaos.
We’ve come a long way since 1980. It doesn’t seem that long ago, but I remember selling tires at the retail sales counter and it went something like this: “Mrs. Smith, I have three tires to choose from today. I have a 40,000-mile tire for $40, a 50,000-mile tire for $50, and our best tire is a 65,000-mile tire for $65!”
Usually, all of these tires came from a single supplier, either factory direct or from our local distributor. When we sold them, we reordered them; simple. Even if we were out of stock on the $40 tire, at least we had the $50 tire to sell. Back then many vehicle manufactures used the same size tires. Most cars were built in Detroit, the Big Three they were called; GM, Ford, and Chrysler. A 195/75R14 fit a lot of cars.
Sometimes our supplier was back-ordered on the $40 tire because they were updating the mold, or moving the mold, or fixing the mold, all to “improve” the supply at some “promised” later date. Sometimes the supplier would offer the $50 tire at a discount until supply improved on the $40 tire. Usually, the supply improved in a relatively reasonable amount of time, and we continued to sell tires in the “good, better, best” format.
In 1980, the “magic” number was 102. That 102 represented the number of SKUs required to have 80% coverage for the types of vehicles on the road. 1990 rolled around and the “magic” number more than doubled to 211. And finally, the new millennium hit, along with 140 more SKUs, bringing the total “magic” number to 352! Well, I don’t have to tell you that the changes and the choices have added complexity to SKU inventory management!
I’m a car guy. My dad worked for GM for 42 years. He started on the assembly line, fitting bumpers on ’54 Buicks, and retired a plant manager. Cars are in my blood. It used to be Chevys and Fords, but now brands are coming from every corner of the globe with names and numbers, like A4s and Z4s, with every conceivable size tire with special compounds, vehicle-unique sizes, vehicle-unique tread patterns, staggered fitments, run-flats, etc. These changes have added immensely to the complexity at the retail sales counter.
We can no longer say to Mrs. Smith, “I have three options to choose from in stock today.” Nor can we say, “Mrs. Smith, I have several options for your staggered fitment Mercedes SL Class, sizes 255/40R18F and 285/35R18R.” Instead, the sales staff utters these famous words that are becoming more and more common every day: “I don’t have your size, but I can get ‘em.” They say this with confidence, but in their minds they are not so sure! The question becomes: “Where and when?”
Where are the tires I need, and when can I get them?
The inventory requirements have become financially demanding, if not impossible, for the independent tire dealer. It has become impossible to fit the “magic” number into a standard-sized tire store. There simply is not enough square feet, nor enough inventory turns to make financial sense. This has forced the independent dealer to rely more on the local/regional distributor to supply his needs on a timely basis.
This is a simple solution; simple, provided the distributor has adequate inventory and proper logistics to meet the ever-changing, wide variety of needs of the independent dealer.
The local/regional distributor is becoming more critical to the success of the independent tire dealer. Currently, however, the rubber manufacturers are struggling to produce the needed SKUs in a timely manner to supply the distributors, resulting in back orders and disappointed “tire channel participants.”
As a result, the relationship between the distributor and the retailer is being strained due to the distributor’s inability to consistently supply the retailer, who then shops Distributor B and C, thereby putting more demand on Distributor B and C’s supply, which is not being adequately replenished by the manufacturer, so the retailer again shops the marketplace to find additional supply.
Soon the retailer has mismatched inventory from Distributor A, B and C, and the new importer who had the lowest price last week. Soon, most of the retailer’s mismatched inventory is almost unmanageable, so why worry about it? Just find something, anything with a low price, and serve it up to the public. It’s easy. There’s a new, lower-priced product every other week. And, after all, you have to compete!
Loyalty seems to have gone out the window. Independent dealers are seemingly becoming more independent, and attempting to take charge of their inventory needs by pitting one distributor against another more than ever, with price and availability being key factors.
I spoke to one of my favorite tire retailers recently. This is a dealer who gets it; high customer satisfaction, profitable business for decades, stable crew, solid business. He was leveling a legitimate complaint, “I’m having to spend 20% more time buying tires than ever before, and I’m not sure it’s doing me any good.”
Now frustrated with a mismatched inventory, shrinking margins, strained relations with suppliers, in walks a customer with too much “Internet tire knowledge” asking for a tire that is on national back order. The sales staff presents a tire that is available in stock, and the customer asks, “Where is it made?” The salesperson gives a good reply; however, they get a funny look from the customer. Despite assurances of quality, the customer drives away!
And all the while, the local car dealer is selling more and more tires at healthy margins, taking advantage of the chaos in the marketplace.
Next month we’ll look at some possible solutions to the growing problem of SKU proliferation, and I’ll reveal the new “magic” number for 2010.
Hint: It’s higher, it’s bigger, and it’s uglier than it was in 2000! The answers are difficult, and the solutions are potentially painful.
Until next month, good luck and good selling!
Wayne Williams is president of ExSell Marketing Inc., a “counter intelligence” firm based in La Habra, Calif. He can be reached at email@example.com.