The proliferation of tire styles and sizes may be the bane of tire retailers, but it's a boon for tire wholesalers, making them an increasingly important player in the tire distribution network.
Wholesalers have little fear of the tire industry trying to eliminate the ``middle man.'' More than simply a transfer point between manufacturers and retailers, wholesalers not only provide storage for a plethora of tire sizes and styles, as well as wheels, many also provide just-in-time ordering, advertising support, pricing programs and training.
``It's a more SKU-intensive business, driven by OE,'' said Ron Sinclair, vice president of marketing for one of the nation's largest tire distributors, American Tire Distributors (ATD) Inc. of Charlotte, N.C. ``For the average tire dealers with one to five or six locations, it's virtually impossible to carry every brand in every size.''
He said his company has figured that retailers would have to inventory about 20,000 to 30,000 tires to meet every need.
``With the proliferation of products and tire sizes, we are able to stock a large number of SKUs and make more available to the independent tire dealer, and (the dealer) can be more competitive with mass merchandisers and national chains,'' said Will Tolerton, president of Terry's Tire Town in Alliance, Ohio.
Wholesalers are increasingly important as tire manufacturers realize that the independent tire dealer keeps a hold on 59 percent of the market share, he added. The cost is too high for tire makers or importers to distribute directly to small independent tire dealerships, and in turn, tire dealers need the distributor to negotiate on their behalf, he said.
While tire dealers can reduce their inventory costs by relying on wholesalers to serve as their warehouses, wholesalers themselves have had to invest in expanding their storage capacity to accommodate the growing number of tire offerings and larger sizes.
``Proliferation changes the balance sheet. We try to keep our inventory in order so we don't get low. We try to have what the dealer needs,'' said Ross Kogel, president of Tire Wholesalers Co. Inc., in Troy, Mich.
Silver State Tire Owner Ed Stocker said a third of his Sparks, Nev., business is ultra-high performance tires due to growing demand. He has increased the space at one warehouse, but he also reduced the number of brands he carries to five from nine, he said, which helped his sales and bottom line.
ATD has been expanding its business through acquisitions and warehouse upgrades and has 72 distribution centers in 38 states. The company said it carries all the top lines and brands. ``We help the independent tire dealer vs. the larger chains that do not have the level of offerings,'' Mr. Sinclair said.
The proliferation of SKUs makes it tougher for smaller wholesalers.
``We've had to increase inventory to have more sizes. It depletes your cash flow,'' said Brian Morris, president of Morris Wholesale Tire Distributors in Troy, N.C. ``If you don't have it and your competitor does, they'll buy it from your competitor ...We have had to expand our warehouse to keep all the sizes and that means more inventory dollars.''
Increasing demand for larger size tires means warehouses don't hold as many tires as they used to, said Robert Hepp, a shareholder in University Wholesalers Inc. in Colchester, Vt.
As a result, University Wholesalers-just recently bought by Finnish tire maker Nokian Tyres P.L.C.-expanded its Colchester warehouse earlier this year, adding 60,000 square feet to the existing 108,000-sq.-ft. structure the firm opened just three years ago, in part to make room for the larger tires.
Don Mathis, sales manager at Zisser Tire Wholesale in St. Louis, said his firm already has outgrown a 135,000-sq.-ft. warehouse it moved into in the first half of this year, partly because Zisser specializes in larger diameter and width ultra-high performance radials.
While some wholesalers are enjoying increased business, others are struggling. ``Some wholesalers who are in rural areas are losing sales to mass merchandisers. And in other areas some wholesalers are exploding in growth. It depends on where they are in the country,'' said Roy Littlefield, executive vice president of the Tire Industry Association.
``We were growing 25 percent a year until six months ago,'' Mr. Morris said, noting that his unit and dollar sales are down for the first time. He attributed the downturn to higher fuel costs and some major manufacturers clamping down on deals, but also to large wholesalers getting bigger.
``In my opinion, the larger wholesalers are weeding out the smaller wholesalers,'' said Mr. Morris, who operates two warehouses servicing Virginia and North and South Carolina. He used ATD as an example of a large wholesaler getting larger through acquisitions of other distributors. ``The role of the small wholesalers is being deleted. We're really concerned about it. It's becoming a monopoly situation.''
Others in the tire business said consolidation among wholesalers mirrors the trend throughout the tire industry. ``There's enough business out there for everyone to succeed,'' Terry's Tire Town's Mr. Tolerton said. ``The independent tire dealer enjoys having choices. There is a place for the mid-level wholesaler.''
Mr. Morris claims the larger wholesalers are cutting off the supply chain of major brands to smaller companies. To counteract this, his company has had to turn to stocking more private brands. Private labels used to make up about 40 percent of his brand mix-now it's 75 to 80 percent, he said. ``We were forced to be that way. It's not something we wanted to do.''
He said private brands are more profitable but they don't make up for the dollar sales loss and, in turn, make up for the higher fuel expenses incurred this year.
Silver State Tire in Nevada hasn't felt pressure from larger wholesalers, but it has turned to private brands as a way to compete. Private and second-tier brands comprise about 80 percent of the company's brand mix. With five warehouses that serve northern California, northern Arizona, southern Utah and Nevada, Mr. Stocker said regional wholesalers have an advantage over national firms.
``We're closer to the customer. We're a family-owned business. Independent dealers are families,'' he said. ``There's a bond there.''
While sales have so far increased 7 percent this year, it's below a targeted 10 percent, Mr. Stocker said. But the Nevada economy is strong and he credits his success to his 35-year business philosophy: ``Stick to the basics.''
``What does the customer want? Service and a fair price,'' he said.
One of the major benefits wholesalers offer tire dealerships is just-in-time orders and daily deliveries. Silver State Tire, for example, runs deliveries once a day on its long routes and twice a day to its short routes. Tire Wholesalers, like other large wholesalers, offers deliveries three times a day in major markets. If a customer orders by 10 a.m., they can get it by 2 p.m.; if they order by 2 p.m., they get it by 6 p.m. Otherwise, they get the delivery the next morning, according to Mr. Kogel.
ATD customers can check the local warehouse's inventory through an online computer program and order for same-day delivery. ``It becomes a great selling tool. The dealers can order (while the customer is standing at the counter) and get it on the next truck. It makes the dealer's selling process more efficient,'' Mr. Sinclair said.
Many wholesalers also stock and distribute wheels, but wheels tend to be a different animal, according to Mr. Sinclair, likening it to the trends in the fashion industry.
``A wheel style that's hot now, in six months, it's old news.'' He said the wholesaler's role is to keep on top of the trends. With many wheels manufactured overseas, orders have to be made now for the coming year.
``The tire dealers count on us to do their product screens,'' Mr. Sinclair said, noting that the company tries to stock what it considers to be the best sizes and styles for the next year. ``It would be a challenge for them to do on their own.''
In addition to wheels, Terry's Tire Town has diversified into auto aftermarket accessories, such as lift kits and bedliners to increase sales and service to its customers.
As an added service, Tire Wholesalers offers informational meetings with guest speakers. Every two to three weeks the company invites customers for lunch at its warehouse where an issue is discussed.
Sometimes it's a manufacturer's representative making a presentation on one of its products or a speaker offering tips on making order adjustments more efficiently. It's a program that educates the company's employees as well as its customers-and they get a free lunch, said Mr. Kogel.