Walter Lybeck, CEO of Point S USA, told Tire Business that the marketing group has had a strong year thus far as it continues to work on expanding its footprint to other regions of the U.S. He said more locations will be announced soon.
Q: With the year nearing its halfway point, how would you describe business thus far in 2018?
A: We see increased margin pressure at a wholesale and retail level, but sales are continuing to be strong and accelerating for our members. While we are very excited to have a year-over-year unit increase of 10 percent, mostly from the same store, the last half of last year was very strong, the second half of the year will be a better indicator of true volume increases.
Q: What are some of the pleasant surprises you are seeing? What has surprised you most?
A: Tier 2 manufacturers are competing at the acquisition price level and most are recognizing where independents make a profit, they will and can migrate sales. Our fastest growing brands are highly competitive on price, with great quality and strong brand awareness. They also provide profit opportunities for the retailer both online and in-store.
Q: Where do you see the industry markets heading during the last half of 2018?
A: I expect significant price volatility due to the changing supplier-wholesaler relationships and as manufacturers jockey for slotting positions in retail.
I also expect the largest manufacturers to leverage their newly combined wholesale assets to continue their push into direct-to-consumer sales business. Their new expanded footprint will allow them to ship directly to consumers more economically than ever before because of their improved geographic proximity.
We are seeing higher sophistication in online pricing. This means our retail locations are receiving significantly more quotes for pricing, but this has not reduced many of our members' ability to maintain margin. Vendor pricing and margin pressure are forcing retailers to sell products that give them better margin control.
While some manufacturers are treating retailers as installers, our most successful members are figuring out that they must learn to sell consumers on the value of their own brand. They must rely on their brand — not just the manufacturer's brand — to create consumer loyalty, trust and profit.
We are excited about the growing profit opportunity in the Tier 2 market because of the shrinking — and sometimes nonexistent — quality gap. This creates a shift in the value equations from brand to price for the consumer, especially when the salesman is confident in the product.
Q: What sectors look to be strong? Are they sustainable?
A: Light truck tire sales are growing in sales and mix for our members. Our members serve consumers who operate in mining, logging and other resource-based industries demanding tough tires. And, our members operate in markets with a high mix of light truck vehicles.
Q: What sectors are struggling? Do you expect them to rebound?
A: Tier 1 tire manufacturers are losing market share with us, and I believe independent tire dealers across the U.S. are craving a paradigm shift. In the last few years, there has been a shift from being partners to competitors online and in-store.
Consumers still demand a strong retail experience, and manufacturers should be aligning with retailers who value that expectation. This retail experience is not cheap. It requires an investment of significant capital and time to be a good retailer. It is my hope that Tier 1 manufacturers find a way to preserve the value of their brand and maintain margins for both retail and online sales.
Q: How has the industry shakeup affected how you look at the rest of 2018 and beyond? Do you expect these to have any impact on Point S?
A: We are solely focused on what we are great at: helping independent tire retailers. We provide distribution for tires and are completely independent of manufacturers and public money. We are owned by our members expressly for the benefit of independents.
If we are excellent at what we do, we will provide value to manufacturers and tire dealers. This is an interesting time to be in the business because there is an opportunity in volatility for those willing to adapt and who keep their eyes open.
Q: Any update on new locations? What's the latest on expanding into other regions, such as Tennessee?
A: We already have seven new retail members this year across our expanding footprint, and we are on target for another fantastic recruiting year. We do have announcements pending for our new market, and they will come soon.
Recruiting an independent tire dealer to join our group is not a fast process, nor do we want it to be. Our brand is deeper than some and comes with some group-wide commitments, like supporting our common warranty.
We are recruiting members who see the need to be part of something bigger than themselves, yet value their independence. They are no longer just another customer of a wholesaler. We are after volume in a way that benefits the member first and will not soil our brand simply for growth.
Our members are our owners, so we are qualifying stores to be part of our group in the same way they are qualifying us as their business partners. Our brand is a priority to our success, based on consumer confidence, and as such, we cannot allow a store to just slap up a sign and call it a location; they must understand and welcome the vision of Point S Tire and Auto Service and how it works to support the vision of their brand.
Q: How has the new warehouse in Memphis, Tenn., impacted business? What are the advantages?
A: Our Memphis warehouse has allowed us to begin recruiting in earnest. A process that we hit very hard just the last few months with excellent success. Tennessee is more than 10 times the population density of our average distribution territory, so this gives us a nice injection to a market with lots of independents.
Q: What is the latest on the push for improved technology or branding? Has anything been rolled out since the dealer meetings?
A: We will be rolling out a new website in June, with the functionality of store inventory lookup. A consumer will be able to know if our member has inventory in a product and, when they have no stock, it will state the availability date based on our earliest delivery schedule. So a consumer never has to see "out of stock" if the inventory is close by.
We have completed 70 percent of our Essential Store Standard scorecard visits, and the results are very interesting and will be positive for continued improvement of our stores.
As a part of the Point S International community we will be giving away several trips to Morocco in 2019 to members who meet certain criteria and it will hinge strongly on the results of their store Essential Standards grading.
Q: Has the threat of tariffs affected your business? How so?
A: At this stage, we have become very good at being flexible on brands that are sourced overseas. We are currently focused on the non-Chinese price-point tires and have some insulation there. We also are very wary of stocking the lowest priced import tires due to quality concerns, tariff risks and reputation of our members and warehouse.
Q: What are some of the challenges of the industry going forward? What keeps you up at night?
As we grow, a common challenge with our members is finding new tire technicians, mechanics and managers. However, industry-wide, the constantly changing consumer expectations and behaviors is the biggest challenge our members face, and it causes us some concern as well. That is why we are so focused on technology solutions for members to compete in evolving marketplaces. I don't believe the perfect mousetrap for online tire sales has been built yet, but our industry is getting better every day, and we intend to leverage the size of our group to give cutting-edge tools to members.
Q: How have the tax cuts affected how you do business?
A: Our sales are continuing to grow at faster-than-market pace. We have not seen a direct impact from this yet.
Q: Do you expect any major investments in the next six months?
A: Our investment is to fill in our network with new Point S locations and to continue investing in our technology infrastructure.