TORRANCE, Calif. (Feb. 5, 2002)—The house that Sam built is teetering.
Winston Tire—the pride and joy of the late Sam Winston and one of North America's largest independent tire dealerships—filed for Chapter 11 bankruptcy protection Jan. 15 in the U.S. Bankruptcy Court's Central District of California, Los Angeles Division. After the voluntary bankruptcy petition was a done deal, the Torrance-based dealership continued implementing a comprehensive recovery plan—under way before the filing—that included the shuttering of 20 unprofitable stores.
Based on that plan, California's largest independent tire retailer projects “it will regain profitability within the next five months” and will “successfully emerge from Chapter 11 as a leaner, stronger and more profitable business within seven months.”
Within a week or so after the filing, Winston had obtained at least $6 million in credit lines, “which is instrumental in our plan to recover quickly,” President and COO Ron Vines told Tire Business. A statement issued by the company also said it was lining up additional capital in trade credit from its major suppliers.
Two of Winston Tire's big-gest creditors are Goodyear—also one of its biggest suppliers and maker of the company's Winston private brand tire line—and Heafner Tire Group, Winston's former owner.
Heafner sold the struggling retail chain in May 2001 to Performance Management Inc. (PMI), a corporate “turnaround specialist” based in Lafayette, La. At the time, Huntersville, N.C.-based Heafner acknowledged its foray into tire retailing was a mistake that took it too far afield from its roots in wholesale distribution. PMI, headed by C. Bryant Kountz, also operates the 11-store Allied Discount Tire & Brake chain in Louisiana. It set up Winston as a separate company with a new management team led by Mr. Vines.
According to Heafner's 10-Q report for the first quarter 2001, PMI purchased Winston and its then-132 retail stores throughout California for $11.3 million.
Operations to continue
Just late last fall Winston was celebrating the fact it had made the last payment to Goodyear on a $5 million loan ahead of schedule, had relocated to a new, smaller headquarters in Torrance and reduced expenses, including paring its corporate staff.
And to capitalize on the still-strong popularity of its deceased founder, the company—with the blessing of the Winston family—was to launch a marketing/advertising blitz that even featured some old TV commercials with Sam Winston himself, whom Mr. Vines said is “still considered an icon in California.”
With the recent store closings—Heafner had closed 20 Winston outlets before divesting the chain—Mr. Vines said the company now has 114 “strong stores” and no plans to close any more. Winston's key suppliers also apparently are rallying around the company. “We have filed a plan with the court that we feel our creditors will view very favorably,” he said. “We have every reason to believe our key suppliers intend to stay with us through this.”
He would not comment on whether Goodyear is offering any financial help to Winston.
Asked by Tire Business whether it planned to back off any prior commitments to the dealership, Goodyear issued a statement calling the bankruptcy filing “an internal business matter for Winston.” The Akron-based tire maker added that “Goodyear has been one of Winston Tire's primary tire suppliers from the beginning, and plans to continue supplying the company's retail locations. Goodyear will work with Winston Tire through this period, with the hope that it is a viable reorganization.”
It is very important for Winston, Mr. Vines said, “that we're in a positive cash-flow situation within 60 days.” That timetable is on track and the company should be out of Chapter 11 by late summer or early fall, he predicted.
During the Chapter 11 proceeding, Winston will continue to operate and provide goods and services to customers, the company said. The dealership, which has been in business since 1962, posted $100 million in revenues in 2001.
The house Sam built became somewhat of a house of cards—with continued, mounting debt, not to mention simply trying to exist in the highly competitive Southern California marketplace. From riding high, Winston seemed to fall a long way to bankruptcy in a short time. But the seeds for reorganization were planted at the time of the acquisition—as well as before—in the opinion of Mr. Vines.
“It is sad,” he said of the company's current hard luck. But he compared its hoped-for turnaround to a situation “like a cancer victim who loses an arm to save his life.”
He said Winston realized even though profitability might be within reach this year, it was “running out of time” and finally determined that “the only clear way out was to take it to Chapter 11.”
The company faced a combination of factors that he believes precipitated the tumble into bankruptcy.
“We had some legal issues we inherited from the previous owner,” Mr. Vines said, explaining that Winston has been saddled with more than 100 lawsuits. Some of them, he noted, are “quite unique to California only,” and are related to how businesses can operate in regard to such areas as payroll, pay plans and hours worked—things “that other states don't have to worry about.
“When you have over 1,000 employees, it can get ugly,” he said. However, the company believes a number of the suits will “be dismissed or go away” as a result of its bankruptcy filing. “We're stuck with them, but are trying to negotiate and maneuver our way out of things. That's why we determined the best thing to do was to file, seek protection and start over.”
In part, the dealership's business was hampered when, Mr. Vines claimed, Heafner cut out all the chain's national and commercial accounts business, which he said was a “significant portion” of Winston's revenue. “Their (Heafner's) wholesale customers benefited, but Winston suffered considerably. That hurt sales, and we've had to earn back those accounts.
“When somebody shuts down a valve like that, it's a killer.”
Another obstacle to Winston's health, according to Mr. Vines, was the dealership's inheritance of some contracts he believes “weren't signed in the best interests of Winston.” Subsequently, the company attempted to seek release from some, or have them re-written, to varying degrees of success.
One contract in particular—negotiated by Winston's former owner with a non-tire vendor—generated money up front for entering into the supply agreement. But Mr. Vines said as Winston pared down operations, it still faced what he described as “pretty aggressive, escalating sales goals” it realized were unattainable. “The vendor said, 'You're not hitting your numbers,' and we told them these numbers will never get hit. This was not a good deal for Winston, and we told them we needed to revisit that agreement.”
The price of units purchased by Winston escalated, according to that contract, if the company didn't reach sales goals. “So we owed them money, and at over-market prices,” Mr. Vines explained.
When Winston changed hands, its new executive team also inherited a database computer system Mr. Vines claimed was designed for bigger companies with 1,000 retail locations, such as Sears, Roebuck and Co.—not the hundred-and-change number of outlets Winston was operating.
Instead of the $30,000 the dealership anticipated spending to fix software problems, it discovered it needed to spend at least $1.5 million to get the situation corrected, he said. Winston ended up buying a new, tire industry-specific system from a vendor with a long history of working with tire dealerships.
The company also was under obligation to continue paying on leases—even on properties that were closed by Heafner. “Those leases would have killed us if we had to carry them,” Mr. Vines said.
“You might say we tripped over dead bodies that kept popping up out of the closet left and right,” he said, describing all the problems Winston faced during the months following its acquisition by PMI.
“Not to sound naive, but we knew the company was distressed,” he said, “but because (the buyout from Heafner) was a pretty quick deal, due diligence didn't give us enough time to get a good grasp of…what the true requirements were.”
He said the company determined after the purchase that a “significant amount” of equipment it presumed was either new or usable instead needed serious repair or replacement—to the tune of more than $1 million.
“At the same time, when you're closing unprofitable stores, it's affecting your cash flow in a negative way…. The air started getting thin, so we decided to reorganize.”
Struggling for years
When Winston Tire was put on the block, Heafner openly admitted it was changing its corporate focus, and that the retail chain was indeed struggling. Stores were closed, operations consolidated.
Referring to the Heafner acquisition, Mr. Vines said: “Heafner certainly didn't hide the fact that there were serious issues that needed to be fixed (at Winston). They said up front that they were a wholesaler, got into retail to enhance distribution, and realized…they did not understand retail.
“We do know retail, know it well and have experienced people. It has just required a little more time and money than we anticipated….”
Dick Johnson, Heafner president and CEO, would not comment on the company's Winston transaction with PMI, other than to say “the only relationship we (currently) have with Winston is a licensing agreement to sell Winston brand tires in California only, which they purchase directly from Goodyear.” Heafner still owns the Winston brand. But the company does not supply the dealership at this time.
At the time of the Winston sale, Mr. Johnson had issued a statement saying the “decision was made to give Heafner the opportunity to place an increased focus on our core business. Over the past several years, Heafner has grown very rapidly through mergers and acquisitions.”
“We feel it is time to concentrate our strategic initiatives and resources on the integration of our distribution business.”
Meanwhile, Goodyear will continue to be a major supplier to Winston, according to Mr. Vines. “They won't be our exclusive supplier, but will be a significant supplier.”
The tire maker had supplied about 90 percent of Winston's tire lines, including the Winston private label, Goodyear and Dunlop brands. That mix will change, though Mr. Vines would not elaborate.
Despite the flourish of marketing using Sam Winston's likeness, the dealership has been forced to cut its marketing/advertising budget to zero through February, except for some expenses it shares with other retailers because of its participation in a Goodyear G-3 ad program. However, Winston plans to kick in its normal ad campaign—albeit a scaled down version—by early March, Mr. Vines said. It will include yellow pages, print and radio ads and possibly some TV, though mostly cable ads tailored to auto enthusiasts and the Hispanic market.
Still, the company likely has a tough road ahead. Ed Cohn, executive director of the California Tire Dealers Association—South, told Tire Business the Southern California market “hasn't died. Some guys are doing exceptionally well. Some said last year was their best year ever.”
But he's watched Winston as it has attempted over the years, with varying degrees of success, to do an image makeover. “I think they got away from what they did best. They advertised a lot, gave the impression they were low cost because they didn't have real plush stores,” he said. “I think when you get away from what your core business is and try to change your image, that's when you have problems.”
Mr. Cohn recalled his last visit recently to a Winston store: “I was in one to get a tire fixed and I almost had to fix it myself,” he lamented, “because the guy there didn't even know how to do it.”
Main focus: tires
Mr. Vines vowed that the dealership plans to be “even more focused on our original business plan, which is to be a tire-dominant retailer,” with reliance on services strictly tied to and generated by tire sales, such as brakes, shocks, struts, alignment and suspension work.
It is a model he said worked successfully for the old National Tire Warehouse (NTW) and Tire America until their acquisition by Sears, Roebuck and Co. He maintains that the mass merchandiser changed that business model into National Tire & Battery (NTB) and, subsequently “hurt that business.”
A former national sales and marketing director for Sears' Tire Group and an officer with NTW and Tire America, Mr. Vines also served a stint with Heafner, where he was marketing director when the company bought the Winston chain in 1997.
To help Winston through these tough times, the company has hired Kyle Kennedy as its executive vice president of retail. A former vice president and board member of NTW, Mr. Kennedy was head of retail operations for Minnesota's Tires Plus until the dealership was acquired by Morgan Tire & Auto Inc. Winston recruited him from Circuit City, where he was a vice president.
As it attempts to climb back to the profitability that has alluded the chain for years, Mr. Vines said Winston will differentiate itself in three key ways:
* Focus on being a low-priced leader;
* Offer “broad-band selections that appeal to the category killer-type” customer; and
* Bank on Winston's longtime good reputation and that of its founder, who died some seven years ago.
Current hard times to the contrary, Mr. Vines acknowledged not all is doom and gloom in bankruptcy.
“There are a lot of positives to rebuilding a company that has been strong in the past,” he said. “We're part of saving and rebuilding it, and we're proud of that.”