Big O Tires Inc. is moving into Michigan, working with a newly formed investor group to open Big O outlets in 12 former Penske Auto Centers in greater Detroit area Kmart Corp. stores.
The investor group, Dearborn Heights, Mich.-based U.S. Autocare L.L.C., opened three locations March 8 and expected to have six more operational during the week of March 10. The final three are slated for opening by March 25.
The new stores, stretching from Port Huron to Monroe, Mich., not only mark Big O's entry into the state but also the first automotive aftermarket group to gain leases from Kmart since Penske's closure in 2002. Once North America's largest independent tire dealership, Penske shut all 562 of its outlets last April. That action came on the heels of Kmart's filing for Chapter 11 bankruptcy protection and subsequent closure of some of its own locations. Penske also had operated a single stand-alone auto center in Ft. Myers, Fla.
In early February, Big O signed a franchise agreement with U.S. Autocare, a firm formed by an investor group last year with the intent of finding an automotive franchiser/tire retailer willing to come to Michigan, according to Stephen Wilson, president of U.S. Autocare and a former Penske executive. He said U.S. Autocare already had been negotiating with Kmart prior to teaming up with Big O.
From Big O's standpoint, operating a franchise alongside Kmart in Michigan fits into parent TBC Corp.'s strategy to have either a Big O or Tire Kingdom outlet in as many locations as possible, said Big O President John Adams. He said it was undetermined at this point if Big O would take over more of the empty auto stores from Kmart, but the company definitely was interested in expanding in Detroit.
``We certainly recognize that to excel the way we'd like to in Detroit, we need to add more than 12 stores in the marketplace,'' Mr. Adams told Tire Business. ``We see this as a great first step. We're very excited that the franchise group approached us with the prospect of opening these stores under our format.''
The 12 Michigan outlets will raise Big O's total store count to 549. The dealership plans to open 25 locations in 2003, not including the Detroit stores, Mr. Adams said.
Mr. Wilson acknowledged that U.S. Autocare is in discussions with Kmart over three more empty auto centers in Illinois for Big O stores. He said the company wants to expand its reach beyond Detroit and possibly get up to a total of 35 Big O stores in Michigan, Illinois and Indiana-but not all of those outlets would necessarily be connected to Kmart. Already, U.S. Autocare is looking at freestanding sites and is in negotiations over a few of the 234 former AutoExpress outlets operated by Montgomery Ward, which went out of business in late 2000.
``There are prime real estate sites out there,'' he said. ``We don't have blinders on to them. We're not going to let Kmart dictate where we go.''
Big O already operates about 20 locations in Indiana but has no outlets in Illinois.
Kmart did not return phone calls seeking comment on its future plans for other empty auto centers.
Neither Mr. Adams nor Mr. Wilson think Kmart's reorganization will be a detriment to selling tires and auto service. Mr. Adams pointed out that many sizable companies pull out of Chapter 11, and with so many vacant auto centers across the U.S., someone has to go in and meet the unfulfilled demand.
``Where there's a void in the market, it provides an opportunity for people to go in and take the existing customer base and provide the services,'' Mr. Adams said.
Mr. Wilson, formerly senior vice president of Penske Auto Centers and, prior to that, regional manager of Kmart Auto Centers, said he was able to choose auto centers with high visibility and traffic.
``We're the first and only group that has a deal with Kmart right now and did it while they were in bankruptcy,'' Mr. Wilson noted. ``They're still in bankruptcy. Some people think that's a huge risk and it is a risk,...but I think that at the end of the day that risk will pay off because we feel that Kmart will come out of this as a leaner and stronger company.''
He said he also has found in his years with Kmart and Penske that though there have been past efforts to correlate a successful Kmart store with an auto center's business, the two are not dependent on each other. U.S. Autocare's approach to business and marketing-as well as Big O's mix of 70 percent tire offerings vs. 30 percent automotive service-will be much different than Penske's, he said.
``I would never say anything disparaging against Roger (Penske) or what Roger did,'' he said. ``I just think that our approach to running a business is going to be a little bit different than it was under previous ownership.
``We were able to select the locations. We didn't take lock, stock and barrel, 700 stores across the country and then try to figure out how they work.''
He declined to give sales projections for the stores.
Already, U.S. Autocare has modified some of its stores to include customer waiting and show rooms and is repainting all the centers, Mr. Wilson said. Big O delivered 1,200-1,300 tires to some of the locations and sent in its crew to train and help get each center's image up to Big O standards. When all the centers are opened for business, U.S. Autocare will employ 145.
Mr. Wilson said he plans to hold a grand opening for all 12 stores in early May, complete with a radio ad campaign, direct mail ads and flyers at Kmart.
``We're very excited and anxious about opening because it's like being in a marathon,'' Mr. Wilson said. ``You're practicing and training until the day you can run the race. Then you find out how good you are.''