DALLAS-Most independent tire dealers cringe when learning that a Wal-Mart Stores Inc. or Sam's Club warehouse store is moving into town. And with good reason. Wal-Mart and its Sam's Club warehouse store subsidiary, with their aggressive pricing tactics and exceptional marketing programs, provide strong competition for tire dealerships and other local competing businesses.
But tire dealers don't need to surrender their operations to these formidable retailers, according to Kenneth E. Stone, an extension economist at Iowa State University.
Mr. Stone, who has made a name for himself by studying the impact Wal-Mart stores and other discounters have had on local businesses, sees hope for independent tire dealers and others who learn to coexist with mass merchandisers-provided they are willing to change, improve and adapt their operations.
``There are a lot of good independent merchants who have hung in there and done really well,'' he said. ``They've learned how to play the game.''
Speaking at the seminar ``Competing with the Mass Merchandisers,'' at the recent National Tire Dealers & Retreaders Association convention in Dallas, Mr. Stone outlined the phenomenal growth Wal-Mart has had since its founding in 1962.
The giant retailer, he noted, is expected to post sales of $68 billion in 1994. With plans to open as many as 160 Wal-Mart stores and 50 to 60 Sam's Club warehouse locations per year, the retailer could reach $200 billion in sales by the year 2000, if the same growth trend continues, Mr. Stone said.
The good news for dealers, he added, is that the warehouse club market seems saturated and same store sales are declining.
In studying the impact Wal-Mart has had on towns in the Midwest, in areas of little population growth, Mr. Stone found that, in virtually every one, sales within the town increased overall. The reason: the Wal-Mart store helped keep people at home to shop and also attracted new customers.
Small outlying towns, however, took the brunt of the loss in business resulting from the addition of a Wal-Mart store, Mr. Stone found.
``They don't have the critical mass of retailing to hold customers there,'' he said.
To determine the impact a Wal-Mart store or other mass merchandiser or discounter will have on a business, Mr. Stone gave two rules of thumb:
If the business sells something different than what the mass merchandiser or discounter has to offer, it will benefit from the additional traffic generated.
But if the business sells exactly the same thing ``you're in trouble.''
Mr. Stone believes it's possible for small businesses to thrive in this environment, but that a lot of owners won't make the necessary changes such as handling different lines or reformatting their stores. ``They just keep doing the same things and sometimes they get into trouble,'' he said.
Mr. Stone offered the following advice to dealers faced with competition from a mass merchandiser or large discounter:
Try not to handle the exact same merchandise. By carrying the same merchandise you will always be compared pricewise.
It's better not to go head-to-head unless you have to, he said. For tire dealerships, he suggested adding a private brand tire line and looking for complementary merchandise or services such automotive repair not offered by the mass merchandiser.
``I've talked to a lot of merchants that get a lot of referrals from these discount stores, if they grease the skids a bit,'' he said.
Look for voids in the mass merchandiser's inventory. Mass merchandisers focus on selling only fast-moving sizes. By shopping the competition, you can find the specialty tire sizes that they don't offer and also look for things they do well that can be adapted to your business, he explained.
Many businessmen, particularly those in small towns, are unwilling to be seen in a competitor's store, Mr. Stone noted. ``We've got local merchants competing against the largest retailer in the world without ever having set foot in their store,'' he said.
Dealers owe it to themselves to visit their competitors' locations and look for voids in their product offerings, he said.
``What we're talking about in a word is niche. If you can find an area you can service, and they're not doing it, you're in like Flint.''
Buy well. Try to get good buys, Mr. Stone advised.
``If it's something you know you can sell and you're getting a genuine good price, I'd take advantage of it,'' he said. ``Because this gives you a chance to sell right down at the competitive price and still make a good margin.''
Mr. Stone encouraged dealers to get to know their market by using information obtained through service firms and computer companies that provides breakdowns of the local population by income, number of cars, age of cars, number of homeowners etc.
Knowing this type of information, for example, will help guide the dealer in determining what type of merchandise to stock, he said.
Extended dealership hours. To reach today's consumers and to compete more effectively, Mr. Stone urged dealers to pay attention to behavioral changes taking place within society. With more family members working, for ex-ample, extending the dealership's hours of operation might make sense.
This is one reason why massmerchandisers sell so many tires, he said. They stay open past 5:30 p.m. and are open on Sunday.
``I'll be blunt about it,'' Mr. Stone said. ``If you're not willing to stay open past the traditional hours, in effect you are saying to the mass merchandiser: `Here's 40 percent of my business and you can have it because I'm not even willing to go after it.' ''
Return policies. Look for ways to improve your return policy, Mr. Stone advised. Wal-Mart, Kmart and Sears, Roebuck and Co. all have liberal return policies on returned items.
``They'll give you a new (product). Give you your money back. Whatever it takes to make you happy. Some of our local merchants think they've got some God-given right to that money.''
Use common sense regarding returns and view them ``long term,'' Mr. Stone said.
While some customers will take advantage of your policy and you could lose some money, it's better than making a customer mad and having them badmouth your store resulting in others avoiding your business.
By taking care of customers, you will keep them and they will tell other people how well they were treated at your store, he said.
Sharpen your pricing skills. Most dealers probably offer tires that are competitively priced. But many consumers believe local merchants' prices are too high. The reason, Mr. Stone surmised, is that the average consumer doesn't know the going price for more than 200 or 300 items.
Wal-Mart understands this, he said. Of the 75,000 items stocked in a Wal-Mart store, only about 500 or 600 are price-sensitive. This is called variable pricing, where you take the products people are really sensitive to in terms of price and mark them down. Conversely, other less-price-sensitive items may be marked up.
Wal-Mart employees shop the competition for price-sensitive items on a weekly basis, Mr. Stone said. If they find a lower price, store managers have the authority to drop their prices.
``So it's futile for you to try and undercut a discounter,'' he said. ``Once they find out about it, they'll just keep going lower until they run you into the ground.''
To compete in this type of environment, Mr. Stone suggested dealers select 10 or 12 items in their stores that are price-sensitive and try to be as competitive on them as possible.
``If you can get within 10 to 15 percent of the price the discounter has to offer, you'll be alright,'' he said.
Stress your competitive advantage. Pick the one or two top competitive advantages your business does better than anyone else and put those in your ads, Mr. Stone said.
Over time, customers will learn to know your competitive advantage and may patronize your business when the need arises.
Emphasize technical expertise. Service and technical expertise are tremendous advantages tire dealerships have over mass merchandisers and warehouse clubs, Mr. Stone said. It's difficult to find workers at these stores who know the merchandise.
Many smaller merchants have built loyal clientele by helping customers analyze their problems and find the tools, supplies and equipment they need, he said.
The downside is that some customers will ``steal your knowledge'' by shopping your store and then buying from a discounter. Or they will bring you a product problem, instead of the discounter.
His advice: Take care of them anyway. ``Use it as an educational opportunity to help them out the best you can,'' he said. ``Some of these people will come back and become steady customers.''
Offer on-site repair. Services such as low-priced oil changes generate traffic and build consumer trust, provided they are of good value.
Special order capability. A dealership can't stock everything, but it should have the capability of locating non-stocked items if requested by a customer.
``I think it's a sin when a customer comes in for something and you say `I don't have it,' Mr. Stone said.