Q Where do you see the industry markets heading during the second half of 2020?
A As long as there are no significant COVID-19 setbacks, there should be continued recovery. The economic stress created by the, hopefully temporary, high unemployment rates has created a downturn in miles driven, which is always the key indicator for retail tire activity.
During this time, Kenda advises retailers to watch their controllable expenses, focus on value products demanded by consumers and maintain strong relationships with their vendors. There may be overall lower tire sales, but smart retailers will continue to attract consumers as their staff anticipates their needs to provide safety and prioritize necessary services.
Q What kind of trends are you seeing in the marketplace? How is your company reacting?
A We have seen the strong shift to value. Consumers need to have their vehicles operating and don't want to overspend. Retailers offering that proposition with brands like Kenda seem to be over-indexing in all markets.
Q What sectors look to be strong? Are they sustainable?
A For all segments, value products seem to be winning. Retailers want to have products that provide higher margin opportunities with expected performance and "no comebacks." We are also seeing higher growth in RV applications, including trailers as more consumers are looking to travel this summer but may avoid motels in lieu of their own living arrangements.
We have also seen higher demand for our light-truck segment, likely due to our new product offerings. We anticipate that those areas will continue to over-index as the economy recovers.
Q What sectors are struggling? How soon do you expect them to rebound?
A Based on retailer feedback and reported earnings, it appears that Tier 1 brands are under-indexing. Past experience suggests that this will rebound once the economy begins to recover, but may be delayed with unemployment in the mid to high teens.
Q Kenda recently unveiled the Klever XT, a UTV tire based on the design of the company's Klever R/T KR601 light truck tire.
A We have been working on developing a radial, DOT-stamped tire for the UTV segments, which need on-road use along with strong, off-road performance. The market has been so responsive to our Klever R/T that we wanted to offer the same performance and value for the UTV segment.
It allows a growing number of light truck owners to have the tires on their trucks match their UTVs as well as introduce many UTV owners to this type of product. The initial response has been outstanding, and we anticipate it will grow as we produce the expanding size line-up.
Q The company said it has had a lot of success with the Klever R/T. How are early sales? Is that segment immune to the current economic slowdown?
A We have seen exceptional growth and response to this product. Kenda believes that the rough-terrain segment is best represented by true light-truck tires while our new Klever A/T2 KR628 will have a broader range of P-metric tires while offering the aggressive aesthetics that have made the Klever R/T KR601 so popular.
No segment is immune to the economic stress, but the market continues to respond in a stronger way to exceptional value — our Klever R/T provides the right sizes and specifications with exceptional performance in both on-road and off-road environments.
Our retailers and consumers are amazed that a tire that won the 2018 Lucas Oil Midwest Off-Road Pro 2 championship provides such a great on-road experience with exceptional looks and wear. We truly believe that it is the best value available.
Q Do you expect to roll out any additional products in 2020? What will they be and what sector will they serve?
A We are shipping our new Klever A/T2 KR628, which we introduced at SEMA last year. It has 41 sizes which complement the KR601 with limited overlap.
Kenda used our channel partners' feedback along with advanced design tools at our Akron Technical Center to create a tire that will provide a great margin opportunity for our retailers along with exceptional value for the consumer.
With up to a 60,000-mile warranty combined with winter snowflake certification, we believe this tire will be the best A/T tire in the market with its balanced performance and great looks.
Additionally, we are completing size additions to our Kenetica A/S KR217 and Klever R/T KR601 patterns which we will announce in the third quarter.
Q Do you foresee any price hikes in the second half of the year?
A Kenda is always watching the market and evaluating our brand position to assure that we are representing the value and channel margin opportunity that we have committed to provide. If there are factors that affect the industry cost structure, we will take that into account in addition to the overall economic situation.
Q Do you expect any major investments in the next six months?
A Kenda has been implementing a robust capital plan for the last several years. We continue to move forward to assure that we are meeting our goals across the global markets in the many segments that we participate in.
Q How has the UHP market fared in light of the proliferation of LTs, SUVs and CUVs? Are you seeing growth and potential for future growth? Any new innovations in the segment?
A Many of these vehicles need a V-rated product or higher, which means that the product application will align with a grand touring tire or a UHP tire.
UHP all-season continues to grow and expand with many CUV platforms requiring similar performance as the automotive platforms. Kenda has designed products around the vehicle application to assure that the performance for the base platform will provide the consumer the best safety and performance.
We have our Klever S/T KR52 tire specifically for premium CUVs and SUVs – it primarily offers H- and V-rated tires for these applications. As the segment grows, Kenda may determine that there is higher demand for a true UHP tire.
Q What is your view of the wholesale channel, given the current conditions? Any concerns for a future disruption?
A Kenda has aligned with strong independent distributors that are able to offer programs to their retail customer bases. We believe that partnering means that Kenda works with the distributors to assure that retailers who support the brand have distinct trade areas with limited competition. We intentionally do not oversaturate the market with many distributors due to this strategy.
We do believe that the strong independents have distinct advantages in the market as they focus on their retail customers. There will likely be continued distributor consolidation as SKU proliferation and capital needs continue to expand, while the service levels and underlying associated costs have been increasing.
Q What are some of the challenges of the industry going forward? What keeps you up at night?
A I am concerned that the economic pressures are putting a large amount of stress on small businesses, which are Kenda's chosen primary partners. We believe in this business model and have aligned our programs and strategies to provide these folks with excellent margin opportunities. If the government doesn't provide a framework to allow the economy to return to pre-pandemic levels, small business will need additional support.
Q Anything else you would like to add?
A Some thoughts for the independent dealers. First, continue to take advantage of the government offers for low-cost loans and grants to support small business — having access to cash is going to continue to be critical.
Be closely affiliated with your bank and have them assist with necessary capital needs. Be prudent and diligent with all variable expenses and continue to control costs.
Make sure that you have a good relationship with your key vendors — if there are needs for supply and cash flow, have an open dialogue with them so that there are no additional surprises. If you have a good relationship, vendors should be looking to the recovery which Kenda feels will continue as we move toward the third quarter.
For automotive retail, know your local markets and anticipate how the needs of your customers may be changing to be in the best position as we come out of the current reductions in car count. Kenda feels strongly that consumers will want value-priced tire brands, but won't want to sacrifice performance.
We advise dealers to find brands that will offer this promise while allowing the retailer to make above-average margins — in the near term, initial margin at the sale should be emphasized over the back-end additional margin provided by loyalty programs to improve cash flow.
