Clubs, Sears inflate tire market; warehouse clubs make inroads as full-liners lessen commitment

Clubs, Sears Inflate Tire Market

Warehouse Clubs Make Inroads As Full-Liners Lessen Commitment

As more and more full-line discounters and mass merchants, including Target, Venture, Zayre and JCPenney, got out of the auto service business, and K mart continued to close auto centers--the estimated discounter and mass merchant share of the tire replacement market slipped in 1986 to 20 percent from 21 percent in 1985 and 1984 and 22 percent in 1983.

But, thanks to the growth in wholesale clubs, the market share for the mass market category crept back to 21 percent in 1987 and 1988 and possibly will gain another point in 1989 to 22 percent, estimates Modern Tire Dealer, the Akron, Ohio-based trade publication.

Indicating the growing importance of warehouse clubs, Price Club now commands the largest share of the Los Angeles tire replacement market, the Los Angeles Times estimated in a market survey. The Price Club share for the first half of 1988 was 9.2 percent, up from 7.8 percent in 1987 and 3.7 percent in 1985. In the market study, Goodyear stores came in second at 8.5 percent, also up from 7.8 percent in 1987 but only 1.1 percentage points up from 7.4 percent in 1985.

By the end of the year, some 378 warehouse clubs will be operating, DSN projected in its 1989 census issue July 3, 1989, compared with 316 on January 1. Sam's Wholesale Club will account for the largest number, 125, with Costco trailing at 62 units.

More than wholesale clubs, however, independent dealers are worried about the new market clout that Sears gained when it bought Western Auto, along with its Tire America and NTW tire company subsidiaries, said Robert Ulrich, senior editor for MTD.

Sears now may control 12 percent to 14 percent of the market, Ulrich estimated, up from about 7.5 percent prior to the acquisition.

Warehouse clubs appear to be taking market share from full-line discounters rather than independent tire dealers, said Tony Hylton, communications director for the National Tire Dealers and Retreaders Association, a trade organization that represents independents.

"Everybody's a discounter in the tire business," Ulrich said. "Tires are like a commodity now."

"There is no more list price. You're crazy to publish list prices now," Ulrich said.

Tire merchandisers are slugging it out for a replacement tire market that grew only 2.2 percent in 1988, with customers buying fewer tires per transaction.

Including 39 million imported tires, industry shipments totaled 155.3 million in 1988, MTD reported, compared to 151.9 million in 1987. Retail prices averaged $51.80 in 1988 and the average number of tires per sale was 1.1, down from 1.9 in the late 1970s.

Longer-lasting radials account for the decline in the number of tires per sale, Ulrich said.

Countering those dismal trends, the market share for high performance tires--with higher price tags--is growing rapidly. Performance tires will account for 30 percent of replacements in 1990, MTD projected, compared to 25 percent in 1988 and 17 percent in 1986.

Another trend is toward branded tires, although private labels still accounted for 40 percent of shipments in 1988, Ulrich said.

Montgomery Ward led the way three years ago when the mass merchant started carrying about eight national tire brands, along with its private label offerings.

Pep Boys--Manny, Moe & Jack, for example, switched last year from exclusive reliance on its Cornell private label and now carries high performance tires in a variety of national brands such as Bridgestone.

Western Auto, following its acquisition of Tire America in 1987, started a program of national brands, including Michelin and Goodyear.

In line with its new thrust into brand merchandise and lower everyday prices, Sears is experimenting with three different auto center concepts, each involving a range of branded tires at sharp prices. In addition, it slashed the price of its private label Road Handler tires to make them more price competitive with independent dealers.

As indicated by test stores in Richmond, Va., Sears appears determined to make tires one of its "power formats." Capitalizing on the tire expertise gained by acquiring Western Auto and its Tire America subsidiary, Sears has converted auto centers in its four Richmond stores to a format it calls Tire America by Sears that focuses on tires and tire-related services, such as front-end alignment and shocks. (See DSN, March 20, 1989, page 47.)

At those centers, customers can buy either off the floor or through special order virtually every tire produced in the free world, including Michelin, Pirelli, Goodyear, Bridgestone (a Japanese make), Yokohama, and even Fulda, made in West Germany.

In other test auto centers in Milwaukee, Sears also is emphasizing branded tires and tire related services. Even conventional Sears auto centers have started to carry Pirelli brand tires.

In a late development, Sears is installing Tire Match machines from Assix, Tampa, Fla., in all of its 824 auto service centers. In a step beyond electronic spin balance, Test Match promises through a computerized program to match each tire against the other four, shaving off minute bits of rubber to make sure they do.

The service, which will cost $4 at Sears, in addition to the normal $6 to $7.50 charge for balancing, promises extra profits in tire service.

Western Auto and Pep Boys are other service-oriented automotive specialty chains using Tire Match, Assix said.

Road hazard warranties are another way discounters are attempting to increase profits in the hotly competitive tire replacement market.

The Sam's Wholesale Club in Louisville, Ky., for example, offers road hazard warranty for $3 per tire, in addition to $3 per tire for balancing. Installation and valve stems are free. It offers Bridgestone, Michelin and General Tire brands.

At the Stone Mountain (Atlanta) K mart, road hazard warranty can bring in extra revenue of $3.50 to $5.50 per tire, in addition to the $6 per tire for balancing. Customers can chose between Bridgestone, Uniroyal and Mohawk national brands.

At American Fare, K mart's hypermarket in Stone Mountain, customers also can choose from top quality brands, such as Michelin and Bridgestone and secondary brands such as Mohawk, Strato-Flite and Frontier-Golden Jet. While American Fare offers no tire service, tire customers can take their purchases to a K mart for free mounting and purchase tire balancing and road hazard warranties at the same prices that K mart customers pay.

At American Fare, everyday tire prices run about $10 less per tire than at K mart, an automotive representative said, while prices are about the same when K mart puts tires on sale.

At Wal-Mart's Hypermart USA in Arlington, Texas, customers can choose from B.F. Goodrich, Michelin and Yokohama brands and get balancing and road hazard warranties for the same price Sam's charges, $3 and $3.

As for price comparisons with a Wal-Mart store, a Hypermart USA tire service rep said, "I know I'm cheaper than Wal-Mart. But they don't carry the same brands of tires."

In the Dallas market, Wal-Mart carries General Tires, the service rep said.

Last December Ames became the latest discounter to abandon the tire replacement market. Ames offered no tire service until it acquired last October the Zayre chain, which operated tire specialty service at 88 of its 388 stores.

In 1987, Zayre had given up on comprehensive auto service and converted auto centers in 105 stores to specialty tire centers called Tire Slashers. But Ames closed the remaining Tire Slasher centers just two months after acquiring Zayre.

And, K mart and Wal-Mart are taking a selective approach to auto service and tires.

For the past four years, K mart has been selectively closing auto service centers that fail to meet profit expectations. Only an estimated 1,200 K marts out of 2,200 now handle tires and the number continues to dwindle. That compares with about 1,600 four years ago.

And, Wal-Mart offers auto service only in about 275 stores out of more than 1,246. In its new store in Louisville, opposite the Jefferson Mall, for example, Wal-Mart offers no auto or tire service. A Firestone tire store sits alongside.

When ShopKo opened its new Twin Valu hypermarket in Cleveland this spring, it skipped tires entirely. And the Carrefour hypermarket in Philadelphia has reduced sharply the floor space devoted to tires and primarily offers only Michelin brand products.

PHOTO : A Tire America by Sears test automotives store in Richmond, Va.: Through its acquisition

PHOTO : of Western Auto, along with its Tire America and NTW subsidiaries, Sears is in a position

PHOTO : to double its share of the replacement tire market to an estimated 14 percent from an

PHOTO : estimated 7.5 percent.

PHOTO : Tires at The Wholesale Club, Indianapolis: The proliferation of warehouse clubs has helped

PHOTO : the discount store/mass merchant category increase market share in tire sales.

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