COMMERCE, Calif. (Aug. 10, 2001)—Many tire dealerships in recent years have moved aggressively into new markets, growing from regional operations into national players.
AKH Co. Inc. in Commerce, however, has decided that growing bigger isn't all it's cracked up to be. Instead, it prefers to concentrate on dominating its region of Southern California. The dealership, which does business as Discount Tire Centers and Evans Tire and Service Centers, has gone the same route as much of corporate America in the past year by downsizing from 72 company-owned stores to 42.
AKH Chairman Andy Andonian sold 11 stores in the Sacramento/San Jose, Calif., area to Goodyear and franchised 21 stores in northern California and San Diego in an effort to consolidate his resources in the Los Angeles market.
“In the next several years, we're just going to concentrate on (the Southern California) market, and we're just going to grow….” he told Tire Business.
For the past several years, AKH's Discount Tire stores in the northern half of the Golden State had failed to turn a profit, he said. Some of those outlets were newly opened shops located in a pricey area—Silicon Valley—and failed to deliver decent profit margins in the face of competition.
“We couldn't make enough volume to justify the rent,” Mr. Andonian acknowledged.
Hence, some tough decisions had to be made, and Mr. Andonian decided to focus on having a key presence in Los Angeles. The dealership set up franchise agreements for the unprofitable stores in the north, many of which were bought by existing store managers who wanted their own businesses. The franchisees operate under the Discount Tire banner, offer the same products and services and pay AKH advertising and royalty fees.
“It worked out well for us and our management,” Mr. Andonian said.
At the same time, nine Evans Tire Center locations in San Diego were purchased by AKH President and Mr. Andonian's brother, John.
“The nine (stores) in San Diego were profitable but we haven't expanded that market for the last 10 years,” Andy Andonian explained. “We wanted to grow that market but didn't have the resources. John had the resources himself and really wanted to move to that city and expand the business there.”
John Andonian is now president of AKH's Evans Tire division, while Andy Andonian has assumed his brother's former responsibilities as corporate president. John told Tire Business that he wanted to escape the smog and traffic of Los Angeles and seize the opportunity to have his own company. He remains an AKH shareholder.
In 2000, AKH posted $76 million in sales, down from 1999's $78 million. In 2001, its company owned stores are projected to post $50 million, while the franchises are projected to report $23 million, Andy Andonian said.