TROY, Mich. (March 15, 2002)—The closings of 63 Penske Auto Centers Inc. locations March 8—a byproduct of the shuttering of nearly 300 Kmarts across the country—could create a window of opportunity for rival tire dealers in certain areas.
And though Penske says it will honor all products and customer warranties, mere geography alone may dictate that some Penske patrons will be forced to go elsewhere for tires and automotive service.
In the wake of filing for Chapter 11 bankruptcy protection on Jan. 22, Kmart Corp. announced March 8 that it plans to close 283 stores in 40 states and one in Puerto Rico. The national retailer told Crain's Detroit Business, a sister publication of Tire Business, that it is closing the stores to create a more efficient economy. Kmart officials did not say whether more closures would be announced later.
The Kmart stores destined to be closed will remain open until the list is approved by U.S. Bankruptcy Court. Kmart said it expects to record a charge of $1.1 billion to $1.3 billion resulting from the closings, which include 271 discount stores and 12 Super Kmarts. The move, according to the retailer, will enhance its cash flow by $550 million this year and $45 million annually.
Ross Kogel, executive vice president of the Tire Association of North America, said he expects other tire dealers to look to fill the Penske void.
“There obviously is an opportunity there to gain additional business,” he said. “Any change in the market—and this is a sizable change—offers opportunities for businesses in the market, and I think this is a significant opportunity for those businesses to gain market share and to snap up customers.”
A Penske spokeswoman called such in-roads by competitors “the nature of the beast,” adding, “I think our marketing plan will keep customers coming back.”
She didn't say if that plan included the possibility of building stand-alone Penske locations in areas of closed outlets. The company has just one such store, in Fort Myers, Fla.
“Maybe we'll look at that,” she said. “I just can't talk about that right now. We need to get through this. Now we've got to get back to the business.”
Despite a nearly 10-percent reduction in number of stores, Troy-based Penske remains the nation's largest independent tire dealership. With that in mind, the company does not foresee a major blow at the customer level.
“We expect the impact of these closings on our business to be minimal,” Penske President and CEO Jim Wheat said in a press release. “I'm pleased to say the remaining 562 auto centers are strong and performing well.”
The Penske spokeswoman would not say whether the number of stores closed was larger or smaller than the company expected or hoped. “It's never a pleasant situation to close a store,” she said. She added that there has been no speculation as to whether Kmart may close additional locations.
Penske said the majority of the approximately 300 employees affected by the auto center closures were retained at remaining Penske locations, but some were placed with Penske Corp. entities such as United Auto Group. Those who lost their jobs—the spokeswoman could not specify a number—were offered severance packages.
Meanwhile, Kmart said 22,000 displaced employees affected by its store closings were offered no severance.
“We wanted to make sure our employees were taken care of, first and foremost, along with the customers,” the Penske spokeswoman said.
Exactly how customers in certain geographic locations, with no other Penske outlets nearby, would be dealt with is unclear.
“There are a lot of parts going into the equation,” the spokeswoman said. “Because we have so many centers, for the most part there are centers close by.”
Whatever the case, Mr. Kogel said the closings create opportunities for rival dealers.
“Dealers can come in and offer quality service and get customers,” he said. “That's just common sense. I can't speak for Penske, but I can tell you it's certainly in the nature of business when you're in a market to try go get other businesses' customers. Clearly one of the key aspects of a successful business is the ability to attract customers and maintain them.”
Apparently the fallout from the Penske closings has already provided some benefits for nearby dealers.
Mike Sternfeld, owner of Super Tire Discount Inc. in Taylor, Mich., told Crain's Detroit Business that he has picked up a handful of new customers who used to go to the Penske Auto Center store at a Kmart located directly across the street. The Taylor store is among those closed by Penske.
Still, Mr. Sternfeld said, “I never really thought of them as serious competitors, even when it was operated as a Kmart.”
He owns the Taylor Super Tire and is part owner of CM Super Tire Inc., in Livonia, Mich. His stores average $1.5 million in annual sales, he said.
Visibility is one weakness for Penske Auto Centers, Mr. Sternfeld believes. The stores are often located on the side of Kmart stores or behind them, and he said visibility and location are key factors for sales.
Another weakness, Mr. Sternfield added, is Penske Auto Center's limited brand offering—they sell only Goodyear, Dunlop and Penske brands, while his stores handle all major brands.