HUNTERSVILLE, S.C. (Sept. 7, 2001)—The profit doctor has put Heafner Tire Group on a strict diet: No more retail. And like all good patients, the company has taken that advice to heart after several years of bulking up on acquisitions.
As part of its slim-down regimen, on Aug. 28 Heafner signed a letter of intent to sell off 29 outlets (including 28 retail and one retail/commercial) under the umbrella of its T.O. Haas Tire Co. subsidiary.
The buyers are a small group of investors led by longtime Haas executive George Hoellen, who'll become company president. Terms of the deal were not disclosed but should emerge when Heafner files its 10-Q report later this year.
The move follows the sale in May of Heafner's struggling 132-store Winston Tire Co. to a corporate turnaround specialist bent on revitalizing the West Coast-based chain.
While the latest transaction may surprise some, when Richard “Dick” Johnson stepped to Heafner's helm as president and CEO shortly after the start of 2001, he alluded to the company needing to concentrate on what it did best. Selling Winston—which the company bought in 1997—and the Haas retail stores “is consistent with what I said when I took over the company in February: We are going to concentrate 100 percent on our core business, which is distribution,” he told Tire Business. “In order to do that, we didn't need to be in retail….”
No more competing with customers
For the T.O. Haas retail stores, what went around came around.
Heafner, under its former president and CEO, Don Roof, purchased Haas—primarily a Lincoln, Neb.-based wholesale distributor—in April 2000 in order to expand its distribution footprint in the nation's Plains States rural heartland. The retail stores were like frosting on the cake since, overall, Heafner was accruing some 85 percent of its total revenues from its wholesale/distribution operations. It will retain the Haas distribution network and facilities.
But, Mr. Johnson admitted, “our customers have bitched like hell at us for being in the retail business. Every time I go to a meeting—and we have more (Michelin) Alliance dealers than anyone in the country—the single biggest complaint they have is doing business with someone who competes with them.”
When he recently met with dealers in California around the time of the Winston sale and told them Heafner was getting out of retail, “it was the loudest round of applause I got.”
Several bouts of soul searching and number crunching later, he asked himself, “Why spend the time and effort with retail stores when we can get our house in order and go back and start acquiring distributors again?” His conclusion: “We have enough volume. We don't need to be in the retail business.”
It wasn't a matter of shedding another failing business. As long as Heafner has owned the Haas retail chain, and before that, it has been profitable, according to Dave Phillips, Heafner's senior vice president of human resources. New owner Mr. Hoellen said the stores—one in Iowa, four in Kansas and the rest in Nebraska—are on track to produce sales of about $26 million this year.
In the deal with Heafner, effective Oct. 1, Mr. Hoellen, 50, his yet-to-be-chosen management team and some 225 employees will operate from Lincoln, as T.O. Haas L.L.C. Under a licensing agreement with Huntersville-based Heafner, they will keep the well-recognized T.O. Haas Tire name on the stores, including the retail/commercial outlet in Omaha, Neb.
Financial arrangements are pending with U.S. Bank in Lincoln, which has been “very receptive,” Mr. Hoellen said.
T.O. Haas Tire began as a wholesale company in 1947. Today, although Mr. Hoellen's fledgling dealership has 10 retail stores in the Lincoln and Omaha metropolitan areas, its strength, he said, is in small county-seat type markets where there isn't much competition.
He promised a smooth, seamless, business-as-usual transition in which the dealership's customers will see no difference between the old and the new T.O. Haas Tire.
With one exception, Heafner is completely out of the retail business. Its lone tire store, located in Lincolnton, N.C., next to the company's former headquarters, was set up by company founder J.H. Heafner and operates as Heafner Tires & Wheels. It does some underhood work, but mostly tires, wheels and alignments and probably will remain on the books for the forseeable future. “It's been there forever and does quite a bit of business,” Mr. Johnson said. “All our employees in the area use it.”
Still, he joked, “one retail store is more than enough to manage.”
When, in 1998, Heafner bought out California's Competition Parts Warehouse (CPW), it gained a company similar to Haas insofar as CPW, basically a wholesaler, had a scattering of speed shop-type retail outlets. Since that acquisition, Mr. Phillips said, Heafner has quietly sold off the seven or eight retail stores. All that's left are “CPW Express” automotive parts mini-warehouses that will remain intact for now. “The parts business is different,” he said. “It's not like the tire business, where some of the stuff gets obsolete and changes a lot.”
As Heafner continued to bolster its billion-dollar-a-year revenue base by gobbling up companies, it found itself, in the case of Winston, with its first major retail acquisition—a chain that wasn't profitable, to boot. Then Heafner was “stuck with it,” Mr. Johnson said.
Was the retail route a mistake?
“That's like being a 'Monday morning quarterback,'” he answered. Even though Winston was “a fairly good-sized chain, we tried to take what was being run as a 'mom-and-pop' organization and institutionalize it—without anybody in our company knowing anything about retail.
“I think the intentions were probably good. They wanted another proprietary brand at Heafner and got that through the acquisition. And they wanted to work closer to manufacturers through both the retail and distribution sides.”
However, if the chain “had been in great shape,” he continued, “and we had management running it who had been there and knew the company, it probably would have been a great idea.”
Consequently, by the time Heafner unloaded the dealership it had reported sales in 2000 of approximately $178 million. But it was purchased by Lafayette, La.-based Performance Management Inc. for what might seem like a bargain-basement pricetag of $11.3 million. Winston “wasn't making any money,” Mr. Johnson acknowledged, “and I don't think there was anyone waiting in line to buy the company and pay us a fortune for it.
“So I think the buyer got a fair deal and we got as fair a deal as we could get.”
After being in charge of Heafner for what Mr. Johnson describes as eight “exciting” months, he's convinced it will emerge from its retailing shadow “a much stronger company than we've been.”
That assessment comes from being in the distribution side of business for at least 30 years—spending a chunk of that time in food distribution, which, he said, is “a lot tougher than tires.”
Prior to joining Heafner, he was president and CEO of ITCO, a wholesaler Heafner eventually acquired. “ITCO had some retail stores at one time, and they did horribly with them,” he recalled, until former Chairman Buck Burwell finally sold them before Mr. Johnson arrived.
“I think any distributor who's in the retail business is competing with their own customers, and why their customers put up with it, I don't know,” he said. “I certainly don't want to go up and down the street and compete with my independent tire dealers. It's just a philosophy I've had for a long time.”
Another observation based on experience is that getting too far afield of a firm's fortÃ&Copy; can prove detrimental.
The food company he worked for had acquired 31 other companies. “When you buy companies, one of the reasons is for the synergies you get…,” Mr. Johnson said. If Heafner “had kept at the pace it was going”—doing buyouts and running them as separate companies—“we never would have been able to take advantage of being a company this size. It was just too fragmented.”
Exiting retail, Heafner will still be a billion-dollar company, but the key, he said, is it'll be only in the distribution business, “so we just have to get a lot better at everything we're doing.”
Shortly after he took over, Mr. Johnson met with the top management of Heafner's principal suppliers, Goodyear, Michelin North America Inc. and Bridgestone/Firestone Inc., and “really laid out for them what we're doing as a company.” With a vote of confidence, their response was: “We were wondering when you were finally going to get your act together and be one company.” That, he recalled, was “really gratifying to me.”
For at least the last half-year Heafner has been rolling out to all its distribution subsidiaries a new computer system that will aid the company in tracking and benchmarking the performance of each. Up until now, that hasn't been possible.
The company's Western Region went on the system in May, and the Haas distribution link, which will be renamed Heafner Central Division, should be online by October. Once that's accomplished, Mr. Johnson hopes to have the company running smoothly, pulling in “the lion's share of the business, and all the profits.”
Eventually, he hopes to get back on the acquisition path and buy more distribution companies. But that's at least another year or more away, he said.
Haas Tire: Growth ahead
While Heafner is getting back to its heritage as one of North America's largest tire distribution companies, Mr. Hoellen is looking to maintain T.O. Haas Tire's relatively young retail roots.
The deal with Heafner “definitely makes life interesting,” he said, noting that his phone's been ringing practically nonstop from other suppliers wanting his business. They don't realize Heafner will continue to be the dealerships' principal supplier. “It's a good opportunity for us. We've built this business from the ground up since 1984,” he said, “so it was a natural for us.”
Mr. Hoellen has been with Haas since 1984, coming onboard after the company entered retailing by acquiring Oldfathers OK Tire, a wholesaler in Beatrice, Neb., which also operated about eight retail outlets in Lincoln and Omaha under the Capitol Tire name. For 15 of his 17 years with the dealership, Mr. Hoellen ran its retail division for Randy Haas, a company owner who now heads Heafner's central division.
The “new” T.O. Haas Tire will continue to offer the same products: Michelin Americas Small Tires' Michelin, BFGoodrich and Uniroyal lines; Heafner's Regul private brand as well as some Bridgestone, Firestone and Dunlop tires. It will, Mr. Hoellen said, be Heafner's largest customer in the central division.
Most of Mr. Hoellen's career has been spent in the automotive business. At 20, he owned his own service station, then eventually got into the tire business as a technician, service manager and store manager. Because he and his entire sales staff have worked their way up through the ranks, he said, “there isn't anything in our stores that we can ask our people to do that none of us hasn't already done. And that's been part of our success: retaining good people.”
The Haas chain, which since mid-1999 added nine stores—including two from the ground up, the rest via acquisitions—will continue to grow, he predicted. “We'll look at growth opportunities in markets that don't have a predominant tire dealer. I see no reason why we can't grow to 50 stores,” though he has no particular time frame in mind. After the first quarter of next year, Mr. Hoellen sees the dealership “kicking into a growth pattern—we're poised and ready.”
He listed his top competitors as Firestone company stores and Tires Plus outlets, among others, but believes other longtime rivals—farm cooperatives that operate tire-related outlets—“seem to be losing some steam.” Haas has already purchased two co-op-run tire service facilities and more may become available.
Though he won't rule out some growth in the company's commercial segment, Mr. Hoellen said “retail will be our priority because it's what we think we do best.”
Meanwhile, Mr. Johnson vowed to steer Heafner toward “one vision: to be the premier distributor of tires and tire-related products in the country.
“To accomplish that, I don't want anyone else in this company to be focused on anything else other than taking care of our customers on the distribution side—and I think that's plenty to do.”