Canadian Tire re-enters the U.S. with automotives warehouse chain - Canadian Tire Corporation Ltd., Auto Source

Discount Store News, July 8, 1991 by Richard Halverson

INDIANAPOLIS -- Having saturated Canada, Canadian Tire Corp. once again is tackling the U.S. market, this time with a new automotives warehouse chain called Auto Source.

CTC won't repeat the $200 million lesson it learned in the mid-'80s from buying the struggling White Auto Stores chain, concentrated in Texas, and then having to fold it.

White Auto Stores exists only as a corporate shell that holds Auto Source Inc.

In a soft opener June 21, Auto Source opened the first of two, 47,000-square-foot stores on a 4-acre site in Indianapolis, with a grand opening set for July 12. It will open a second unit next month and expects to open a unit in Dayton, Ohio in October.

Auto Source sees a potential of 100 to 120 such units in the Midwest, its target market, said Kent Stickley, vice president of marketing and merchandising. For 1992, Auto Source envisions opening 10 to 12 new units.

CTC wanted to call the chain Car Care USA but was unable to register the name.

CTC turned to the United States for new opportunities, Stickley said, because Canada's population of 25 million -- that of California -- won't support further growth. Canada is blanketed with 417 CTC home and auto dealers.

Sales totaled $3.06 billion (Canadian) in 1990, a gain of 3.5% from $2.96 billion in 1989. Operating profits for CTC, however, fell 8% to $215 million from $233.7 million.

Auto Source will differ from other automotive warehouse operators, Auto Parts Club, Auto Giant and Auto Depot in California, in its emphasis on heavy automotive repairs and service. Auto Giant and Auto Depot offer only light auto service, while Auto Parts Club, geared toward professional installers, offers no service.

Each Auto Source unit will devote 15,000 square feet to 24 service bays, including two for quick lubes. Other bays will offer auto service ranging up to complete engine changes and transmission repairs.

Focus groups showed that American consumers are angry about poor auto service, Stickley said. "Nobody is doing the service situation right," he claimed.

The chain eventually hopes to train its own mechanics, Stickley said, but at first is hiring qualified mechanics from the competition by offering good pay, clean working conditions, state-of-the art diagnostic equipment and a retirement plan, he said.

Auto Source will stock between 17,000 sku's and 18,000 sku's of parts and accessories, with an emphasis on tires: Michelin, Firstone, B.F. Goodrich, Pirelli, Yokohama and Armstrong. The warehouse unit will operate under an everyday low price policy, Stickley said. He declined to disclose targeted margins.

To keep costs low, Auto Source won't warehouse merchandise. Instead, vendors will ship directly to stores.

A line of car and truck batteries will be the only private label merchandise, Stickley said. "Auto Source will offer quality, branded merchandise at a value price."

Auto Source expects to draw customers from an eight-mile service radius, he said, compared to five miles for a conventional parts store.

Competition will include Nationwise, Montgomery Ward, Autoworks, Sears and its Tire America and NTW tire subsidiaries owned by Western Auto, and AutoZone, which also is entering the market. Reportedly, AutoZone is building the first of an expected 15 units in the Indianapolis market.

In merchandising, Auto Source will use warehouse steel racking throughout most of the store, Stickley said. Within the steel racking, the chain will use pallet presentation, dump bins, pegboards or standard gondolas, depending on the category.

To slash labor costs of handling tires, which must be moved one by one, Auto Source developed a conveyor belt with hooks to lift tires directly from the loading dock to a tire storage mezzanine. It runs around three sides of the building under a 25-foot-high ceiling.

Customers won't have access to the tire mezzanine, he said, but a massive visual presentation will hit them as they enter the warehouse.

Merchandising Wrinkle

In a merchandising wrinkle, Auto Source installed a car lift just inside the entrance. It hoists a car that displays "market basket" signs showing the lower cost of under-car services, such as brake jobs, at Auto Source, compared to those at competitors.

Auto Source "will be pitching a little" at the professional installer, Stickley said. "We're not sure how much wholesale business there is."

Stickley expects a three-way sales split among tires, service and parts.

On the environmental front, Auto Source began recycling Freon air-conditioning refrigerant right away, without waiting for the Jan. 1 federal deadline, he said. The firm also accepts used motor oil and batteries from DIY customers.

In addition, Auto Source later plans to recycle used antifreeze solution, already a legal requirement in California, and stock national brands of environmentally improved automotive chemicals.

The entrance of CTC in the automotives warehouse field comes amid mixed signs of success for the new concept.

Auto Parts Club, San Diego, continues to expand, with seven units already operating in California since its 1989 launch and an eighth in Phoenix, Ariz. In addition, it is set to open another warehouse club in San Francisco and club No. 10 in Oakland, Calif. In a further expansion move, Auto Parts Club is constructing two units in San Antonio, Texas.