'You have to focus on what you're good at'

July 1, 2002

Over the past several years, Falken Tire Corp. has evolved into one of the top domestic ultra-high performance tire marketers. But it hasn't been an easy climb. The first six months of 2002 were especially challenging for the Rancho Cucamonga, Calif.-based company, which is owned by Ohtsu Tire & Rubber Co. Ltd.

"We had a bad first half mechanically," says Richard Smallwood, Falken vice president of sales and marketing. Problems included faster-than-predicted sales volume growth that left Falken short in 18-inch and above sizes; the installation of a $1.5 million software system that did not recognize "inventory even though it was physically available"; and unit shortages in Falken's entry-level Visa passenger and light truck program, which grew faster than originally anticipated following its nationwide launch last November.

In this exclusive interview, Smallwood discusses the challenges Falken faces, the company's strategic positioning and its long-term plans.

MTD: What is Falken's direction for the second half of the year and into 2003?

Smallwood: Making sure we have our systems working, first of all. We spent a lot of money getting a new computer system. We knew we had to make that change if we were going to continue to grow. You've got to have a solid infrastructure in place. The second thing is to make sure production is back in line. We had bigger sales than what we expected, and our parent company was a little bit conservative in what they thought we could do. We exceeded their expectations considerably, especially in the 18-inch and above (segment).

MTD: Any big plans for next year?

Smallwood: No. We've already introduced a bunch of product lines. We've had expansions of some lines. We don't have any new product lines planned. But there are big changes in store.

MTD: Three or four years ago, it looked like Falken was trying to expand into broad-line tires. Since then, the company has decided to re-focus on niche products like ultra-high performance tires. Why?

Smallwood: You have to focus on what you're good at. You can't compete successfully if you can't provide something unique. We can't compete in commodity products. Seventy series, 75-series didn't work for us. We weren't making any money and, in some cases, were losing money (with those tires).

MTD: What is Falken's relationship with Sears and NTB like?

Smallwood: They're one of our largest customers. Our business is up with them right now.

MTD: Any plans to pursue sales through other mass merchandisers?

Smallwood: Not at this point. Sears has been a long, on-going relationship and works well for us. At this point, we'd rather concentrate on the dealer channel. It fits better with who we are. Mass merchandisers are not into ultra-high performance products.

MTD: How and where are you positioning the Visa brand?

Smallwood: As our entry-level fighting brand.

MTD: What are your market penetration and/or sales goals for Visa?

Smallwood: Sales goals? This year we'll double what we did last year, as long as we have enough product. The big problem is that we keep running out of product.

MTD: How is supply?

Smallwood: That's almost a multi-part question. With supply (for tires) 18 inches and above, we've been living hand to mouth; it's been very tight. Seventeen-inch and below with the Falken brand has been very strong. Less than a year ago we doubled our capacity in that area. Visa has been another story. We took it from a small, regional promotion to a national program. None of us expected it to have the success that it has had.

MTD: Why were Ohtsu brand passenger and light truck tires dropped? (Falken discontinued selling Ohtsu passenger and light truck tires last November.)

Smallwood: There was no need for it. Falken is our flag brand. We didn't need to have two associate or secondary brands. It didn't make sense to have both Visa and Ohtsu.

There really is no Ohtsu now. We got rid of it completely in passenger and light truck. The only thing left is medium truck, and that will be gone within two years.

MTD: You're phasing out Ohtsu brand medium truck tires?

Smallwood: Yeah. Everywhere else in the world it's called Falken.

MTD: So eventually you'll have Falken brand medium truck tires here in the United States?

Smallwood: Yes, probably by the end of 2004.

MTD: What are your promotional plans for next year? Is Falken working on other big sponsorship deals like the Pike's Peak race?

Smallwood: We're going to continue to take all the major events we can.

MTD: What is Falken's point-of-sales goal in North America?

Smallwood: Our goal is to have a couple of key retailers in each market and then two key wholesalers (per market). There are so many dealers out there that one wholesaler can never satisfy them all. A dealer may have had a bad experience with a wholesaler 20 years ago that still prevents (him) from buying from that distributor. That's why we'd like to have two strong wholesalers in each market.

MTD: What is Falken doing in Canada and Mexico?

Smallwood: We just took over Canada and Mexico on Jan. 1. Mexico has been slow. In Canada, we're now selling to (Quebec-based) President Tire, which is a home run, because they're one of the largest (dealer/distribution groups) in Canada. That's been taking off really well. We have one or two small dealers (in Canada) and they're doing decent volume. We're going to continue to go after Canadian business. It fits together well for us because they're buying a good amount of ultra-high performance product.

MTD: What have the problems been in Mexico?

Smallwood: Number one has been pricing. It seems like Mexico is used as a dumping ground for most manufacturers. Pricing there is so dramatically lower than it is in the U.S. or Canada that it becomes very difficult to justify the price point.

MTD: What is Falken's biggest challenge at the moment?

Smallwood: Our biggest challenge has been getting supply. Our growth has been phenomenal. I've been here two-and-a-half years and we'll be more than 50% larger than when I started.

MTD: Where do you see Falken as a player in North America within five years?

Smallwood: As a very solid, strong niche marketer. Someone that goes after the ultra-high performance and sport light truck tire markets. Actually, you really can't call those niche markets anymore. When a niche becomes that large, are you truly a niche marketer?

MTD: What role will independent tire dealers play in Falken's growth?

Smallwood: A major role. We're trying to find dealers who are the best to work with us in the long-term. We have spent the whole past two years aligning our dealer base with where we want to be.