A few more names than just Manny, Moe and Jack may start drawing new customers into a certain automotive repair chain's nearly 600 stores nationwide.
Those new names are Continental, General, Goodyear, Michelin and Hankook. As of May 16, tire retailer Pep Boys-Manny, Moe & Jack launched nationwide sales of these name brand tires in addition to its Futura and Cornell private labels.
But while one tire maker is heralding the new relationship, at least one other is trying to distance itself from it. Continental Tire North America Inc. said in a statement it is ``pleased to be one of their top suppliers of name-brand tires.''
A Goodyear spokesman told Tire Business it is trying to get a different message out to its dealers. ``We certainly want to clarify that we do not sell direct to Pep Boys,'' he said.
After a nine-month test market program, the Philadelphia-based chain introduced name brands in a bid to increase tire sales-of both private label and flag brands-plus establish relationships with customers for more service work. The tire program is part of a larger ``retail renewal'' that includes offering other new products, redesigning stores and focusing on service work. Private label tire sales account for 18 percent of Pep Boys' sales and nearly 25 percent of its profits.
CEO Larry Stevenson said in a conference call that the test market stores tracked sales of the name brands and saw higher tire sales overall. ``More importantly we also sold more of our own Futura tires,'' he said.
Continental and General will be the major players, Pep Boys officials said. The other three name brands will be dispersed in markets where they're likely to sell well.
Pep Boys launched the major brands with a retail advertising program promising Pep Boys would beat any other retailer's prices on national brand tires by 5 percent. Pep Boys offered a $100 shopping card at its stores with the purchase of four national brand tires, along with free installation and free lifetime rotation. ``Nobody beats our prices,'' the ad said.
Some selected prices were: Michelin MXV4 for as low as $129.99 each; Goodyear Regatta for as low as $79.99 each; or General Ameri*GS60 for as low as $59.99 each.
Mr. Stevenson said the advertising campaign will take ``many months'' to get consumers accustomed to Pep Boys as a place for name brands.
Continental said its role as a major supplier offers an ``unprecedented opportunity'' to expand its replacement tire sales. ``They represent a retailing point of sale that is valuable,'' Ed Marohn, director of sales for the mass automotive retail sales channel, said of Pep Boys. He added the in-store displays and Pep Boys advertising are likely to increase awareness of the tire maker's brands.
Bob Snelling, president of two-outlet Jones Tire & Auto in Glendale, Ariz., said he'll abandon Continental and General-his major brands-as a result of this deal.
``If Pep Boys carries it, I'm going to drop it,'' he said. ``It's just not worth the grief.''
He said huge chains like Pep Boys can snap up good deals on tires, leaving him stuck trying to sell tires for $80 that a chain is selling elsewhere for $35.
``There's no way the little guy can buy deep enough,'' he said, adding he doesn't believe the arrangement really works for tire makers either since name brands often are used to bring in more business for higher-margin private labels.
However, Marvin Steele, president of Grimes Tire in Memphis, Tenn., said he figured it was only a matter of time until Pep Boys added name brands. He's more concerned with a Pep Boys opening in Memphis than he is with the chain adding tire makers' flag brands. His two outlets sell Continental as well as other brands.
Goodyear, which is seeking to repair relations with its independent dealers who have been upset in the past by direct relationships with mass retailers such as Sears, Roebuck and Co., is trying to communicate to dealers that Pep Boys is buying the tires through a third party.
``Our field reps know that, and they're out there letting our dealers know,'' the Goodyear spokesman said.
A Pep Boys spokesman said the company is buying both Goodyear and Michelin tires from an unnamed third party, and Pep Boys still can use the name brands in advertising. The plan calls for selling multiple lines of Hankook's Ventus nameplate.
Pep Boys operates 595 stores in 36 states and Puerto Rico. Mr. Stevenson said the company is beginning plans to improve its store density, although new stores aren't likely to come on board until 2006. He doesn't expect a significant impact on density until 2008 or 2009.
The name brand tires are likely to find their way into a host of other automotive service shops besides those 595 Pep Boys outlets.
In January, Precision Tune Auto Care franchised facilities reached a distribution agreement with Pep Boys giving the service chain's 340 U.S. stores access to all tires stocked by Pep Boys, including name and private brands. Those arrangements are done on a local level, and so far 50 PTAC outlets are selling tires with more looking at the prospect.
``Now our franchisees have a wider selection for their customers,'' said John Wiegand, senior vice president of operational programs for the parent company.
Precision has a similar arrangement with TBC Corp.'s Tire Kingdom Inc. subsidiary.
For Pep Boys, the tire program is one part of its ongoing renewal plans. Mr. Stevenson said tires are attractive because of their margins and also their attached services. The addition of name brands should help new customer traffic.
``(That) brings us a group of customers who may have been shopping us for other things but weren't shopping us for tires because they may have been very brand loyal,'' he said.
In deciding where to sell some of the name brands, Mr. Stevenson said the company looked at trends within its own test market, not market share on a national level.
``It is highly unlikely that someone who was buying a private label tire from us...is going to jump up to a high-end Goodyear or Michelin,'' he said, adding Pep Boys also took original equipment sales into consideration.
For the first quarter, Pep Boys' sales jumped 10.8 percent to $566.1 million. Comparable sales increased 11 percent, comparable merchandise sales increased 12.3 percent and comparable service revenue increased 5.6 percent. The company also reported net earnings of $16.2 million, vs. a loss of $7.33 million last year.