Brand name tires on roll at mass merchants - Automotives - Discount Industry Annual Report. Part II: Merchandising and Productivity Analysis

Discount Store News, August 5, 1991

Brand Name Tires on Roll at Mass Merchants

Against the backdrop of emerging environmental issues and continued development of the automotives warehouse concept, U.S. branded tires have assumed a bigger merchandising role at discount and automotive specialty chains.

At the expense largely of independent tire dealers, warehouse clubs, for example, captured a 6% market share of replacement passenger tires in 1990, or 9.3 million tires, according to one estimate. In comparison, the market share for warehouse clubs was 3%, or 4.3 million units, just four years earlier.

Sam's Club, for instance, stocks Michelin, Pirelli and General national brands.

Last year, Kmart dropped its private label tires in favor of Uniroyal and Bridgestone. Kmart, however, continues to weed out marginal auto service centers, whittling the count down to about 1,050 out of some 2,350 stores.

In contrast, Wal-Mart is selectively adding auto service centers, with around 425 out of 1,600 stores offering auto service, including mounting General brand tires.

But the lack of general automotive service is no bar to the growing presence of general merchandise warehouse clubs, auto warehouse chains, such as Auto Parts Club, and hypermarkets, such as Carrefour, which offer auto service limited to tire mounting and balancing.

The advent of the automotives warehouse concept, with emphasis on auto service, also bolsters tire merchandising.

Although Auto Giant, which expected to be operating 14 warehouse units by year-end, is stalled at three units by a cash squeeze, the warehouse concept got a powerful boost last month when Canadian Tire Corp. opened the first outlets of its new Auto Source warehouse chain.

Armed with a $192 million tax loss carryforward from its failed White Auto Stores chain, CTC appears well equipped to carry through on plans to open 10 to 12 such units a year.

CTC's first Auto Source, Indianapolis, offers a massive presence in brand tires, Michelin, Firestone, B.F. Goodrich, Pirelli, Yokohama and Armstrong. It features tires on a mezzanine that runs around three sides of the 47,000-square-foot store.

And automotive warehouse chains, such as Auto Parts Club, which soon will be operating 10 units in California, Arizona and Texas, has become a major factor in tires.

In contrast to the trend toward auto supermarkets, Sears has shrunk the size of its prototype auto parts departments and service centers. As its new store in Freehold, N.J., illustrates, Sears has settled on continuing to offer full auto service but in 13 bays instead of 20. Auto parts and accessories, one of seven power departments for Sears, also must get by with less space.

Enter the environmental issue. At least 16 states--with nine more in line--require retailers to collect taxes or fees on tire sales and hand the money over for disposing of the mountains of junk tires that have piled up.

In addition to any state disposal tax, Pep Boys--Manny, Moe & Jack charges customers 50 cents a tire to cover its cost of disposing of their old tires. Pep Boys has completed its move away from its previous reliance on private label tires to stock Michelin, Bridgestone, Uniroyal, Goodyear and Futura.

As the number of corner service stations and discounter service centers continues to decline, auto service revenue for Pep Boys grew to 12.5% of its total in 1990 from 11.9% in 1989 and 10.6% in 1988.

Used motor oil recycling, however, threatens to have the most environmental impact. In anticipation of federal legislation, a number of chains have jumped into oil recycling. They include Chief Auto, which pioneered oil recycling, Advance Auto and Northern Automotive. In addition, Wal-Mart and Auto-Zone are testing it.

Although oil recycling costs about $100 a month per store, chain executives say the cost is minimal compared to the marketing edge it gives them in customer goodwill. As a bonus, one chain finds that it loses a little less on oil, a traditional loss leader, because its oil recycling program allows it to bump up margins.

In another environmental impact on aftermarket merchandising, chains will have to stop selling small cans of Freon to DIY customers by November 1992 and start complying with coming federal regulations to prove they sell the ozone depleting air-conditioning gas only to professional installers. And as chains such as Kmart and Pep Boys already have started to do, all chains that service auto air conditioners will have to buy Freon recycling equipment by Jan. 1.

PHOTO : Target, Eagan, Minn.: Full-line discounters sold $5.76 billion in auto products last year.