"Study sees bleak future for unaffiliated dealer."
That headline and accompanying story, at the top of page 1 of the Oct. 3, 1983, issue of Tire Business, summarized the findings of the Stern Report, a scholarly study of the challenges facing the U.S. tire retailing industry commissioned by the National Tire Dealers & Retreaders Association and released at the association's 1983 national convention in St. Louis.
Considering the myriad studies done annually and usually forgotten before the next one arrives, the Stern Study has held up remarkably well under scrutiny and its findings are still seen as relevant today.
In the preface to the study, the author, Professor Louis W. Stern of Northwestern University, wrote: "Independent dealers must develop the economies of scale needed to provide the competitive advantage of low per-unit costs. The twin pillars of this strategy are acquiring buying power and developing management effectiveness.
"Buying power is obtainable from well-programmed volume purchases. Management effectiveness is afforded through pooled cost-effective andvertising and promotion, low overhead-to-ownership ratios and access to common support systems."
Mr. Stern's recommendations to dealers at that time?—1. Become an active part of an existing large-scale organization; 2. Acquire or merge with other local dealers; or 3. Form dealer- or wholesaler-sponsored cooperatives.
Mr. Stern's suggestions could be seen as a blueprint for today's marketplace makeup.
His cooperative idea, for example, can be seen today in the mission statements of independent organizations like American Car Care Centers, Tire Pros, Mr. Tire/Big 3 Tire, Independent Tire Dealers Group, Tire Alliance Group, Tire One, Tire Factory, Treadmaxx, etc., or franchise groups like Big O Tires, Midas, Car-X, etc.
The major tire makers and marketers have gotten into the act as well, with associate dealer marketing programs like Bridgestone Americas' Affiliated Retailer, Michelin North America Inc.'s T3 Certified Tire Centers, Continental Tire the Americas' Gold Dealer, etc.
Long story short: The industry has evolved over the past 30 years along lines closely resembling those laid out by Mr. Stern and the study.
And another proviso in the Stern study that's still relevant: "Regardless of whether he becomes more active in, joins or sells out to a larger organization, each dealer will be participating in a system in which he has little control. The dealer will therefore give up much of his independence in exchange for economies of scale."
The essence of this statement—how "independent" is a retail business owner within a buying and/or marketing group—still lies at the heart of each entrepreneur's decision about joining a group and which group to choose.
A quick check of the industry's marketing affiliations shows more than 14,500 dealership outlets operating within an independent group's or wholesaler's program and nearly 34,000 dealership points of sale allied with one or more manufacturer or importer/distributor programs.
From macro point of view, consolidation and affiliation have been constant threads weaving the industry's changes together over the three decades.
If one accepts the premise that there are more than 45,000 establishments in the U.S. that can be called tire retail points of sales, the 10 largest "independent" dealerships control about 11 percent of the marketplace (by store count), and the 100 largest account for 13 percent.
In this case, "independent" is defined as retailers not controlled by a tire manufacturer or part of a general merchandise retailer.
The 10 largest independent retailers in 1983 — led by then-No. 1 Winston Tire Co. with 144 stores — controlled 854 outlets.
Today the 10 largest independents operate 5,430 outlets, with the two largest dealerships — TBC Retail and Discount Tire/America's Tire — each having more stores than the Top 10 total of 1983.
By the way: only two of the 10 largest independent chains in 1983 are still in business today under the same identity — Discount Tire and Les Schwab Tire Centers — along with the Big O Tires franchise network.
In terms of market dynamics, the extent of tire manufacturers' controlled distribution has shrunk over the years to just two—Bridgestone Americas and Goodyear, but Bridgestone has expanded its Firestone Complete Auto Care to what is considered the largest tire retail and auto service chain in the U.S.
Tire sales by oil company service stations has all but disappeared but car manufacturers have filled that void and more with their aftermarket-oriented tire and auto service retail networks, such as Ford Motor Co.'s QuickLane or Chrysler Group's Mopar Express Lane.
One nationwide competitor that did not exist in 1983 is Wal-Mart Inc., which opened its first Supercenter with tire service in 1988.
While consolidation has been integral to the industry for decades, the rising tide of takeovers took on unexpected volume in recent years with the disappearance of well-respected, decades-old, multi-generational dealerships; companies such as Autotire Car Care; Kramer Tire Co.; Ken Towery's Tire; Tire Warehouse Central; Big 10 Tire; Vespia Tire; etc.
This trend coincided with a shift in the market dynamic to non-traditional entities into the tire retailing arena.
Consider that in the past five to six years that as many as 400 retail outlets previously in the hands of independent dealers—representing more than half a billion dollars in revenue—are now controlled almost entirely by three publicly traded auto service-oriented companies: Monro Muffler & Brake Inc.; Pep Boys – Manny, Moe & Jack; and TBC Corp.
Add to that the growth of a handful of multi-regional "mega" dealers and the emergence of a stronger challenge from the nation's car makers and their dealer networks, and it was clear that the definition of the tire retail aftermarket had changed and is continuing to evolve.
The Rubber Manufacturers Association (RMA), for example, shows independents' collective share of the passenger tire and light truck tire aftermarket sectors at 66 and 79 percent, respectively, on par with the shares a decade ago.
For instance, the share of the car tire replacement market controlled by "local dealerships"—defined by the RMA as independents with fewer than 10 outlets operating in a single regional distribution area —has shrunk to 22 percent from 43 percent,
The local dealerships' losses have shifted to what the RMA calls "regional" (more than 10 outlets in at least two regions) and "national" dealerships (more than 40 outlets in three or more regions). The RMA breaks the U.S. into 10 regions.
According to the RMA data, regional dealerships' share of the business has nearly quadrupled, growing to 11 percent from 3 percent, and national dealerships' share has jumped 14 points to one-third of the market.
By the way…the Stern Report was offered to NTDRA members for $25 a copy and to non-members for $100.