Sears Canada Inc. is exiting the automotive aftermarket business by divesting or closing all 49 of its auto repair centers.
The move crosses out one large competitor in the competitive Canadian tire market but strengthens three tire dealerships that are taking 36 of the 49 auto centers plus others that were previously closed.
Sears signed operating agreements with Kal Tire, President Tire Canada and Active Green+Ross to operate the 36 centers. The 13 others will be closed or converted to non-automotive uses. Terms of the deals were not disclosed.
In addition, Active Green+Ross will acquire three stores that Sears had closed in 2001 and will reopen them this month. In all, Kal Tire will take over 11 stores in western Canada, President Tire will operate 17 in Quebec and the Maritimes and Active Green+Ross will get a total of 11 in Ontario. The tire dealerships will operate the sites with three separate licensing arrangements under their own banners. Most of the conversions will be done around this summer, the companies' principals told Tire Business.
The three tire dealerships also will get exclusive rights to sell the DieHard battery brand in these markets and in their entire operations. The dealers also will honor Sears warranties as well as the Sears credit card, which has some 9 million users across Canada.
With the licensing arrangement, the dealerships essentially will sublet the stores from either Sears or the shopping mall owner.
The Sears auto centers range in size from 3,500-22,000 square feet and have from five to 22 service bays, Sears said. Of the 49 centers, 21 are free-standing sites, while the other 28 are attached to malls or Sears department stores. Active Green+Ross said the annual sales of each of the Sears locations it's taking over are in excess of $1 million (Canadian), which the company expects to increase.
President Tire said its 17 stores have combined sales of about $23 million (Canadian). In two years, President Tire wants to get that figure back up to $30 million-where the centers had been a few years ago before business slowed down.
Kal Tire said it has not yet mapped out specific sales targets, but the centers' proximity to shopping malls likely will put them on par with the dealership's top retail outlets.
Of the 13 remaining stores not covered by the tire dealer arrangements, Sears Canada will close six and convert seven others to non-selling store space or selling floor space for merchandise within the full-line store to which they are connected.
A Sears spokesman in the U.S. said the two companies are separate, and the U.S. retailer's more than 800 auto centers are not affected. Last year Sears sold its National Tire & Battery (NTB) unit to TBC Corp. ``Auto centers in the U.S. are a very important part of our business,'' the spokesman told Tire Business.
A spokesman at Sears Canada said the automotive business was an investment drag on the retailer's core business of apparel, home fashion, big-ticket furniture and major appliances. As vehicles became more computerized and more difficult to service, Sears eventually weighed the capital investment against the benefit.
``We were investing in that equipment because our customers expected only an A-level of service,'' the spokesman said. ``But what we had to ask ourselves...is, `Do we want to keep investing in a business where it's not going to be core for us and where there's other people who specialize in it and can be buying equipment and products for a larger number of stores?'''
He said he doesn't foresee Sears Canada ever re-entering the automotive aftermarket arena. The move had been considered for a couple years, he added.
Still, Sears' loss is a gain for the three tire dealerships.
Dealers cited as among the Sears deal's perks:
* Already high customer traffic counts at the mostly mall locations;
* Good parking and access;
* High customer loyalty to Sears; and
* Devotion to the DieHard brand.
Tony Milina, director of marketing for Vernon, British Columbia-based Kal Tire, said the pool of workers affected by the move also is a huge plus. About 775 Sears associates will be laid off by Sears, and Mr. Milina said Kal Tire hopes to rehire all of the employees for the stores it acquires-as well as from nearby closed stores-and absorb them into Kal Tire's organization.
``That's something that was really important as part of this deal,'' he said. ``We saw this as a great way to bring more young, experienced people into our business and offer them career growth opportunities but also offer us some real new blood to help us expand.''
Denis Monette, general manager of Laval, Quebec-based President Tire, said his team met with affected employees in their 17 stores days after the deal was announced March 30. He said employee retention is crucial to absorbing such a large number of stores effectively.
The company expects about 10-15 percent to leave on their own-either to take the chance to retire or pursue new careers-but the meetings may have prevented others from leaving.
``We conveyed a message that we want them, we want to keep them with us, we want to take care of them, and we want to make sure they are guaranteed about the continuity with us,'' he said.
Customer loyalty also was a big point for Active Green+Ross.
``It's a great opportunity for us,'' said President Ralph Chiodo. ``It increases the number of stores by a third....(The Sears stores) had a long-lasting relationship with their customers and their community. They're a good opportunity, and we're really pleased to take them over.''
With the deal, Kal Tire has 176 stores. The four stores it will acquire in British Columbia will be converted effective May 31, and the seven Alberta stores will be online June 14. Mr. Milina said the influx of stores is mitigated by the fact that Kal Tire isn't building and opening them from scratch. ``It's sizeable, but on the other hand it's manageable,'' he said.
With the conversion, Kal Tire will sell out Sears tires and replace them with Kal Tire products. The stores will no longer sell Sears' RoadHandler private label, though they will add some of Kal Tire's brands, such as Falken and Federal.
The deal marks an important step for Kal Tire, Mr. Milina said.
``It's absolutely part of a long-term strategy of increasing our retail presence,'' he told Tire Business. ``We're the No. 1 independent tire dealer in Canada, we're the fifth largest in North America, but most of that strength comes from the commercial and farm side of the business. We're steadily growing on the retail side for passenger and light truck, so this gives us another big jump in terms of availability for customers, if they haven't, to come in and try out Kal Tire.''
Geographically, many of the stores are in urban areas Kal Tire had been eyeing. ``It gives us a really good foothold in the lower mainland of British Columbia as well as Calgary and increases our presence in Edmonton as well,'' he said. ``And that was really important for us.''
Active Green+Ross will re-open the three closed Sears stores as its own this month. The eight others are expected to switch over in early June.
In addition, the Toronto-based company is opening its own new location in Toronto, across the street from the former Green+Ross's warehouse. With these additions, Active Green+Ross will oversee 43 locations. Both the Sears stores and the new outlet will be offered as franchises, Mr. Chiodo said, and the company already has received interest from new and existing franchisees.
The company likely will sell all of Sears' current tire lines including RoadHandler, Mr. Chiodo said. One or two new brands, like Yokohama, may be added.
President Tire, which plans to finish its conversion by Sept. 1 in time for the fall and winter seasons, will add the group of Sears outlets to its six other company-owned stores. With its member company stores, there now will be 209 President Tire outlets.
Besides the good condition of the stores and the prime location in shopping centers, Mr. Monette said President Tire is looking forward to accepting the Sears card at all of its stores. ``They are extremely important in Canada, so it's going to be a plus,'' he said.
President Tire also will be able to sell tires under the RoadHandler name, though it can change manufacturer, Mr. Monette said. Cooper Tire & Rubber Co. and Michelin North America Inc. produce the tires, and President Tire is a customer of both, although Cooper makes the President brand.
Mr. Monette said a decision has not yet been made. President Tire also will add some brands, including Falken and Vredestein.
Though Sears is exiting the market, the dealers don't expect the Canadian tire market to loosen up competitively.
``There's a real mix of small independent businesses combined with some very large players, and everybody's trying to earn customers' business every day, so we don't see this as something that will make the industry less competitive,'' Mr. Milina of Kal Tire said. ``We think, if anything, it will make it more competitive.''
Mr. Chiodo of Active Green+Ross agreed. ``In the Toronto area we're already dealing with a very extremely competitive environment,'' he said.
``However, we have adapted to it, and we know how to deal with it, and we will survive any battles that will come forward. Them leaving I don't think lessens the competition any because others have moved in such as Sam's Club, Costco (Wholesale Corp.) and Canadian Tire Corp. So we will hold our own.''
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Sears Canada scorecard
* Sears Canada: -49 auto centers
* Kal Tire: +11 stores in western Canada
* President Tire: +17 centers in Quebec and the Maritimes
* Active Green+Ross: +11 centers in Ontario