GfK: Dealer inventory should address pricing, trends

BOWIE, Md. — Aftermarket tire unit sales across most categories have fallen so far this year, compared with 2022, yet increased pricing has helped boost retail revenue, according to GfK Group, an NiQ company, which presented a webinar, "Three Key Trends Disrupting the U.S. Tires Marketplace," co-sponsored by the Tire Industry Association.

"We're experiencing volume declines, declines due to delayed seasonality and economic factors, but the retail price and product mix is helping to offset those losses," Neil Portnoy, executive vice president, market insights at GfK, said.

"And we can't emphasize enough is a lot of this is selling the right products and having the right products when," Portnoy said. "So the category-management approach and managing your products encourages you to monitor each segment, each category, individually and to understand the product life cycle, so you can capitalize on growth and manage a decline."

Based on point-of-sale data GfK collects from its tire retail clients, the U.S. independent tire retail channel sold an estimated 94 million tires for the first 10 months of the year, down 2% from the previous year.

The decline in volume was offset by a 6% increase in the average unit price, to $185,GfK said, yielding a 4% increase in total tire revenue of $17.4 billion.

"So I think what's really important for us to note here is that when we say a price increase, this is not the manufacturer, and this is not the retailer simply slapping an incremental price increase on the same time," Miguel Quiros, GfK's vice president, tires retail, said.

"This is also the menu the retailers and the manufacturers have been able to manage the product screen, being able to manage the mix of products, so you're leveraging the categories that are growing and you are managing down the categories that are declining."

Other trends impacting the aftermarket tire business, according to GfK, are the emerging categories of all-weather and electric-vehicle (EV) tires and the growing prevalence of larger-rim-diameter fitments.

Quiros said 2023 tire sales have been impacted by a soft start and a delayed ramp-up of the tire selling season, causing unit sales to trail 2022 by 2% and 2019 (the last "normal" sales year) by 3%.

When broken down by category:

• Passenger tires (touring, all-season and sedan sizes) command a 48% share of the market. So far this year 45.1 million have sold, down about 2% from a year ago, but the average selling price increased about 6% to $167;
• Light truck tires hold about a 25% share of the market, with 24.6 million units sold so far this year, down 1.5%; the average unit price increased 3.2% to $230;
• Sport-performance tires (HP, UHP) have a 15% share of the market and accounted for 14.3 million units sold, a 6.2% drop from last year; however the average price jumped more than 6% to $171; and
• Specialty tires (cargo vans, trailer and winter) account for about 6.5% share of the market and had a 5.3% drop in sales to 6.1 million units; the average unit price increased 3.4% to $147.

Quiros noted that even though unit sales of passenger and light truck tires fell, they are holding steady with their respective market shares.

Some older sizes of high-performance, touring all-season, light truck and all-terrain tires are considered "mature" sizes, but they are "the bread and butter" of any shop's inventory, according to Quiros.

"This is what you need to have in your store. As we're showing you here, it is still almost 60% of all tires sold in the channel, 55 million (units) so far this year, but clearly losing volume (down 6%) and not being able to hold price (down 1%).

"It is one of the few segments that has not been able to increase price. So, yes, it's the core of the screen, but it is where you need to be even more surgical on what to have in your store," he said.

"One thing that we're noticing is the ultra-high-performance category is now starting to blend more and more with the auto touring series. So we're seeing touring SUV sizes with higher speed ratings. We're seeing ultra-high-performance sizes with CUV fitments. So all of that combines for about a third of the industry — 31 million (units) so far this year. ... The net channel is a 2% decline; this group is a 4% growth improvement," Quiros said.

These premium tires also enjoyed a 9% jump in average unit price to $203, he said.

"So if I was designing a product screen for my store today, at a high level, I will keep at least 60% of my screen with the mature sizes. I'm not going to discard those, but I need to understand who they are so that I have 60%, and I'm probably going to over-index a little bit on my growth segments ... 35% of growth SKUs in my screen so I can leverage that growth and not be missing that growth," he said.

The niche category tends to be more stable: rock-terrain and mud-terrain tires, mostly driven by enthusiasts; cargo van and commercial light-weight tires, mostly driven by fleet accounts; and winter tires, which depend on regional and seasonal needs.

"But it's also the one that gets hit a little bit earlier with things like a soft economy. ... (Enthusiasts) will look for other alternatives when the economy hits."

The EV and all-weather tire segments are growing, according to GfK.

"They're growing in volume, they're growing in price, and they're growing in share of market," Quiros said.

All-weather tires are designed for year-round driving conditions, including snow, but are not meant to replace winter-designated tires for deep snow and ice conditions.

Sales of all-weather tires surged 63% to 1.5 million units, compared to the 2019 period, with average unit price increasing nearly 30% to $206. During the same period, sales of winter tires fell 4% to 1.9 million units, but the price point increased 23% to an average $187, according to GfK, noting that all-weather tires have been targeted for newer vehicles and premium vehicles.

"So far this year, all-weather tires have already surpassed the highest peak of 2022 and really the last five years. So the category continues to strengthen, the category continues to grow," Quiros said.

"But it's also important to be clear that this is not a replacement for the winter category. Winter category tires will continue to be strong in needed and deep winter regions. ... But it's also important to see how the category is growing and leverage that growth into your screen as you see fit," Quiros said.

Today, an estimated 2.5 million electric vehicles are registered in the U.S., according to GfK, noting the pool of EVs and the need for EV replacement tires will continue to expand over the next five years.

But independent tire dealers may not see a boost in EV tire sales anytime soon.

"The electric vehicle consumer is typically, first and foremost, loyal to the car dealer," Quiros said. "It is an expensive vehicle. It has specialized repair maintenance. So this consumer will gravitate right back to the car dealer to have their tires replaced, which is logical and maybe makes sense. But as time goes on and (the vehicles) start to age, this consumer starts to gravitate and migrate back to the independent channel."

GfK identified 443,000 units, designated as EV tires or EV-compatible, sold so far this year in the independent retail channel, up 55% from the 2022 period.

"So EV tires in this channel are continuing to ramp up at a fast pace in the channel. And this is really what's driving the growth is a consumer that is used to only having the option of going back to the dealership, they are starting to move into the independent channel," he said, noting that EV tires will remain a small percentage of a typical dealer's inventory for the near future.

"Here's where we need to team up with our wholesale distributor, with our WD partners, and make sure that they have the right sizes and they have the right products. We can have it for same-day delivery and bring it to the store. This is not a sale that we want to miss. ...," Quoris said.

"But as a general rule, the category is still in the ramp-up process. It's not there yet."

The average retail selling price for an EV tire so far this year is $287, an increase of 51% compared with the 2020 period and 21% higher than the year-ago period.

It's not just the types of tires but the sizes within each of these categories that are growing, specifically the 18-inch and larger rim diameter sizes, according to Matthew Wright, GfK account director, tires.

Most of the growth is driven by the popularity of CUVs and SUVs.

A GfK survey of consumers planning to purchase a new vehicle indicated that 54% expect to buy a utility vehicle as their next purchase. In addition, larger wheel and tire packages provide the look that consumers prefer, Wright said, noting it is consumer preference, as well as the shift to larger vehicle production, that is driving the trend.

Sales of tires with rim diameters of 17 inches and below are down 8% year-to-date, but these sizes still represent 58% of all tires sold in the aftermarket channel and ultimately make up the larger portion of a tire dealer's product screen, he said.

Larger-rim-diameter tires account for 42% of all tires sold and are selling at higher prices — $234 on average — presenting a revenue opportunity for dealers, as consumers are more willing and ready to pay higher prices for larger tires.