Pep Boys puts expansion on hold while it ratchets up on-site service: New marketing campaign to stress one-stop-shopping - Statistical Data Included

DSN Retailing Today, Jan 21, 2002 by Katherine Hutchison

The new campaign is slated to debut in the first quarter, and placement strategy will focus on alternative media channels. "We're in all four parts of the aftermarket, but I don't think we've done a good job marketing our uniqueness and that we are everything for everyone," Liebovitz said. "I think Jeff can have an impact."

As one of the few aftermarket retailers that sell tires, Pep Boys bore the brunt of an abysmal year for tire sales. Compounding the economic downturn's effects, Pep Boys reaped the benefits of the Fire-stone recall in third quarter 2000, which created an impossible year-over-year comparison and slowed demand in 2001.

"We were going up against double-digit comps the prior year," Liebovitz said. "In September, replacement of passenger tires was down 19% across the industry."

He said Pep Boys has begun to see "meaningful improvement" in tire comps. Over-capacity on the supply side enabled it to work out an exclusive sourcing deal with Cooper Tire & Rubber that Liebovitz indicated was advantageous to the retailer. Cooper had previously supplied 60% of its tires, with Dayton providing the remainder. Also, last March, Pep Boys discontinued its long-time battery supplier agreement with Exide Corp. in favor of Johnson Controls.

Pep Boys plans to open only two supercenters in 2002, on Long Island and in northern New Jersey. With savings achieved in its two DCs, the company plans to upgrade its DCs this year with new warehouse management systems. "We're feeling better about all areas of the business," Liebovitz said.

Babich said after the company "turns the page" in its first quarter beginning in February and anniversaries the restructuring initiatives, it will begin posting positive comps. Both he and Liebovitz maintain comps have been on an upward trajectory since about mid-October.

Pep Boys is projecting 68 cents per share in earnings for 2001, in line with or above Wall Street expectations. "With the major changes we did last year, we gave up sales to significantly improve profits," Babich said. "Our profitability has been substantially better than plan."

He dismissed concerns from some, such as Goldman Sachs' Matthew Fassler, that Pep Boys lacks the sales momentum to keep delivering earnings growth.

"Next year, the [financial] models out there have us with earnings growth in excess of 20%, based on just 1.5% to 2% comp sales increases. For every point in comps we get above that, it generates even more eps. In today's economy, that's nothing to be ashamed of"