AKRON (Sept. 26, 2005) — When it comes to competition in the mass merchandising market, the big continue to get bigger—and that especially goes for the Goliath in the market: Wal-Mart Stores Inc.
Of the three major mass merchandisers that offer tire and automotive services, Wal-Mart continues to add locations every year. Sears Holdings Corp. is bolstering its operations through the recent merger with Kmart Holding Corp. but may be in somewhat of a holding pattern on the automotive side. In Canada, Canadian Tire Corp. Ltd. is revamping its store layout to attract more customers.
All three behemoths pose as intimidating competitors to independent tire dealerships. While these companies have name recognition, market saturation and pricing control, tire and automotive service is just a fraction of their overall retail focus.
Wal-Mart and Sears failed to respond to inquiries from Tire Business about their plans for their tire and automotive service operations; Canadian Tire is in the process of reformatting its stores and has declared its goal to increase its share of the Canadian auto service market.
Whenever Wal-Mart moves into a marketplace, the reaction is often fear—that the leviathan retailer will cast its price-cutting shadow over smaller businesses to snuff them out.
In Cleveland, for instance, U.S. Rep. Sherrod Brown (D-Ohio) held a town hall meeting Sept. 19 on Wal-Mart's business model as leaders of the struggling metropolis decide whether to allow the company to open its first store in the city. According to news reports, a number of small business owners, union leaders, politicians and citizens debated whether Wal-Mart's low prices, coupled with low wages, cost an area too much in the long run.
The Tire Industry Association's director of business development, Paul Fiore, said he believes the competition from mass merchandisers is a regional issue. Some independent tire dealers consider mass merchandisers serious competition while there is “a strong contingent” who believe they can compete easily with mass merchandisers on price.
Although price may be what attracts consumers to the mass merchandisers, Mr. Fiore said he believes these customers are not well-informed on market pricing or just assume that they will get a better price at a so-called “big box” store.
“I suspect those going to a big box store are not concerned about the level of service or the quality of service,” he told Tire Business. While some tire dealerships can compete on price, Mr. Fiore noted that the competitive edge for most is quality customer service and professional training. “The experience of buying tires (at a mass merchandiser) is completely different from buying from a professional tire dealer.”
The Bentonville, Ark.-based retailer generated $256 billion in sales in 2004, up 12 percent from 2003. The 2,949 Wal-Mart retail stores and supercenters in the U.S. accounted for 68 percent of those revenues, or $174.2 billion. Hard goods, including tires, accounted for 19 percent of sales.
The company added 139 retail outlets in the U.S. in 2004 and plans to add 250 more by year-end. Only about 1,700 locations house a Tire & Lube Express, the retailer's automotive service operation, which offers lube, oil changes and battery and tire service. Its tire brand offerings include Goodyear, Michelin, BF-Goodrich, Uniroyal, Continental and its own Douglas private label.
It also operates 256 Wal-Mart stores in Canada, about 170 of which offer Tire & Lube Express services.
As part of the retailer's “Every day low price” slogan, the company challenges customers to “Dare to compare” on its tire and auto service prices.
Wal-Mart offers an “ Installation and Tire Protection Plan” for $9.76 per tire that covers mounting and installation, a new valve stem (including guarantee to fix valve stem problems at no charge), lifetime balancing and rotation and a road hazard warranty that covers free flat repair or replacement for tires with less than 25-percent treadwear.
Before its merger with Kmart in March, Sears, Roebuck and Co. reported $36.1 billion in revenues in 2004. Of its 1,970 U.S. stores, more than 850 have auto service centers. Revenues from merchandise sales and service fell 3.1 percent in 2004. That, the company said, was due in part to its divestiture in late 2003 of the 226 locations of its National Tire & Battery (NTB) automotive service operation, which were sold to TBC Corp.
Post-merger, the new parent company, Sears Holdings Corp. of Hoffman Estates, Ill., claims $55 billion in annual revenues with 3,500 full line and specialty stores in the U.S.
Sears exited the automotive aftermarket business in Canada last year by divesting or closing all 49 of its auto repair centers.
Sears Tire & Auto Centers provide general tire and auto service, including lube and oil changes, suspension and brake service, shocks and front-end work. Its tire brands include Michelin, Goodyear, Bridgestone, Sumitomo, General, Falken, BF-Goodrich and its own Guardsman private label line.
Despite its name, tires make up only a small portion of the Toronto-based retailer's operations, which tout a “three 'stores' under one roof” concept—an automotive parts, accessories and service division, a sports and leisure department and home products.
The company—through its approximately 458 retail locations—rang up retail sales of $6.52 billion (Canadian) in 2004, an increase of 4.4 percent from 2003. About 447 of those stores offer automotive service.
Compared with the retailer's home and leisure divisions, automotive accounted for $1.71 billion in sales in 2004, up from $1.65 billion in 2003.
Canadian Tire stores are run by independent “associate dealers” who buy merchandise from the company.
Last year the Canadian retailer lost one of its major competitors when Sears Canada Inc. decided to exit the automotive aftermarket business, citing its Canadian repair centers as a financial drag on the company's core business of apparel, home fashion, big-ticket furniture and major appliances. But any Canadian Tire gains may have been short-lived, as a number of tire dealerships including Active Green+Ross, President Tire Canada and Kal Tire purchased some of the Sears outlets.
Meanwhile, Wal-Mart has about 231 stores on Canadian Tire's home turf.
However, Canadian Tire—which claims about 7 percent of the country's automotive service market—said it has a long-term goal of capturing 10 percent. Part of the retailer's plan is to implement auto service inspections and follow-up phone calls to measure customer satisfaction and respond to customer concerns.
Canadian Tire also implemented a new store layout and marketing program, which it said helped drive sales last year.
The company's Concept 20/20 program, unveiled in 2003, involves new and expanded merchandise categories, a customer care center, new store signage, revitalized exterior facade, and increased retail space with reduced warehouse space within the store.
The makeover is designed to boost sales in a store by 20 percent in the first year after conversion, the company said.
On average, sales at 15 new Concept 20/20 stores and six remodeled stores last year exceeded the 20-percent expectation, the company re-ported.
This year Canadian Tire is targeting 15 existing stores for remodeling and plans to open about 20 Concept 20/20 formatted stores.
The retailer's tire offerings in-clude Goodyear, Michelin, BF-Goodrich, Uniroyal, Dunlop and Canadian Tire's own Motomaster private brand. The tire price in-cludes a road hazard warranty, valve stems, installation, lifetime rotations and brake and shock inspections, and free flat repairs.
The auto service departments handle basic services covering areas such as tire service, lube and oil changes, cooling systems and mufflers.