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Competing against an 800-pound gorilla: Better service gives dealers an edge over Wal-mart

Almost every independent tire dealer has a Wal-Mart store or a Sam's Club looming on his or her horizon.

Most of them joke about it. Some disparage the service and tire expertise of their big competitor. And a few complain that tire manufacturers provide these outlets with products and prices that put dealers at an unfair disadvantage. But none of them can ignore the impact of the Sam Walton-created monster.

On Jan. 31, 2005, the end of its last fiscal year, the company had 1,478 Wal-Mart stores, 1,471 Wal-Mart SuperCenters, 538 Sam's Clubs and 64 smaller Neighborhood Markets. By the end of its next fiscal year, these 3,551 outlets could well expand to nearly 4,000 given Wal-Mart Stores Inc.'s expected rate of expansion. Among the new stores is an experimental, environmentally friendly Supercenter in McKinney, Texas.

Last year, worldwide sales reached $285.2 billion, up $29 billion, or about 11%, from the previous year.

The company won't say what part of its sales and profits comes from its tire operations, however. Modern Tire Dealer estimates that including Sam's Club, Wal-Mart sells between 21 to 23 million tires a year (see sidebar).

Wal-Mart stores sell Goodyear, Michelin, Continental, BFGoodrich, Uniroyal, Dunlop and Douglas tires. They stock only the most common sizes, but promise to order other tires promptly for installation at their facilities at no shipping charge. However, independent tire dealers claim delivery can take up to two weeks.

Wal-Mart and Sam's tire shops also are limited in the tires they will mount. They are forbidden to put on alternate tire sizes; to switch speed ratings to provide Plus-One and Plus-Two applications; to deal with bent rims, broken or damaged studs and lug nuts; etc. One Wal-Mart tire service employee said this is to avoid any possible liability.

A catalog-sized book lists acceptable tire installations and conditions to be met. If it's not in the book, the tire shop won't touch it.

Besides auto and light truck tires, the stores handle tires for trailers, campers, wheelbarrows, bicycles and golf carts.

At a Wal-Mart store in the Canton, Ohio, area, the listed price of tires did not include an $11 per tire charge for mounting, valve stems, road hazard protection, etc.

A SuperCenter in nearby Massillon, Ohio, charges $9.76 per tire or $39.04 for four for a "Tire Protection Plan" that includes balancing, valve stems, road hazard protection, mounting, flat repair and free replacement of non-repairable tires for one year or 25% of tread wear.

The company says prices are the same nationwide, except where local conditions dictate otherwise.

One Ohio Wal-Mart visited by MTD did not have a 185/75R14 tire for an Oldsmobile Ciera, for instance, but offered to order a set.

At a nearby SuperCenter, an employee went to the computer and offered a choice of three sets of four at that size. With tax they ranged from $251.01 for a 60,000-mile-warranty tire to $189.44 for a 45,000-mile tire.

Asked what would be best for a certain type of driving, she had no answer, other than to say you could compare the warranted mileage of each tire.

What should be purchased for bad weather, rough roads, turnpike driving or local versus long-distance use? If she had any idea, she wouldn't admit it. Dealers say Wal-Mart people are told not to make such recommendations for fear of risking liability in case of an accident.

At Wal-Mart, tire and automotive service consists strictly of tire sales and mounting and lubes. Sam's offers only tires and batteries. The stores do not align wheels, though it's probable some misalignments caused the tire wear that brought customers in for new tires.

"We do sometimes suggest customers go to another dealer to get that done," said one Wal-Mart employee.

Wal-Mart and Sam's Club stores visited in preparation for this article showed a surprising lack of business. During repeated visits, only one or two tire bays were in use. Surprisingly, a Sam's Club seemed to have more business, at least on these occasions, than even the SuperCenter.

Generally, smaller independent dealers seem to worry more about Wal-Mart competition than they do the larger chains, or at least admit they do. Perhaps that's because Wal-Mart has traditionally preferred smaller markets, at least in the early days.

As Wal-Mart has entered metropolitan markets, it has tended to surround an area with stores in the suburbs rather than take on established mega-dealers downtown.

David vs. Goliath

How do you compete with a giant? Independent dealers have a variety of strategies when it comes to Wal-Mart stores and Sam's Clubs.

Some, like Prineville, Ore.-based Les Schwab Tire Centers, another $1 billion-plus tire retailer, practically ignore them.

Schwab President Phil Wick says Wal-Mart is "no trouble at all. We don't market at the low end, but we always have a low price (with which) to compete. We're having a great year and will soon grow to 400 stores. So we hardly lose any sleep over Wal-Marts and Sam's."

At Pueblo Tire and Service, an eight-store chain based in McAllen, Texas, owner Ricky Ivy says Wal-Mart is a problem, especially among low-income customers.

"Too often they don't look beyond the glitz and the low price. But Wal-Mart only supplies about 60% of what drivers need. I wish they hadn't come in, but many recognize that our service and better inventory top the low cost order-takers."

Ron Piscottia owns Maple Tire stores in Stafford Springs and Vernon, Conn. After the arrival of both Wal-Mart stores and Sam's Clubs, "we just gave up chasing low end customers," he says. "Since we made that decision, both our retail and wholesale business have grown. We also benefit from their limited tire stocks, service facilities and tire expertise."

Kelly Kidd's main store is in Taswell, Va. He has another Kidd Tire outlet in Richlands, Va. He knows one tire dealer who went out of business, perhaps at least partly because of Wal-Mart competition, though other factors were involved.

Mark Compton, service manager at the Richlands store, complains that tire manufacturers supplying Wal-Mart sell them the equivalent of a lower priced private label tire, but put their flag brand name on the sidewall, further increasing the independent dealer's price disadvantage.

Connie Honey, owner of North Jackson Tire in Tullahoma, Tenn. says Wal-Mart doesn't give her tire store too hard a time. In fact her tire store moved to larger quarters -- even closer to a Wal-Mart store than its old location -- earlier this year.

She wonders if Wal-Mart is pushing customers to spend a lot of time shopping in the rest of the store when it makes them wait three hours for an oil change.

One dealer in the southeast, who didn't want his name used, says Wal-Mart might not be quite as much of a problem in the future.

He says he knows a Wal-Mart "manager" who said he has heard tire operations at Wal-Mart produce comparatively low profit per square foot of space they occupy. This is a statistic the corporation watches carefully, and may result in a cutback in the area devoted to tires and lubes. Two dealers in other parts of the country said they had heard similar rumors.

Dana Wagenhals, vice president of Tire-Rama Inc. a Billings, Mont.-based tire store chain with 32 retail locations in the state, says training tire store employees pays off. Eventually most customers recognize and appreciate the difference from service at "the big box stores that just sell what tires are on the shelf."

Though Armando Valenzuela, owner of A&V Tire Service in Oxnard, Calif. claims nearby Wal-Mart outlets are "not really a problem," he does resent tire manufacturers that charge him "$70 for a tire Wal-Mart is able to sell for 65 bucks."

Benny Rodriguez, owner of Tires Unlimited in Eagle Pass, Texas, is a rare bird who welcomes his Wal-Mart store neighbor.

"I don't try to compete," he says. "I get to know the Wal-Mart manager and service manager and they'll send me wheel alignment jobs, those who want specialty tires or people who have service problems they can't solve."

It has worked for him during the six years he has operated the tire store, and a lot of times the Wal-Mart referrals become permanent Tires Unlimited customers. Gary Brison, owner of an American Tire Center store in suburban Canton, Ohio, not only has Wal-Mart and Sam's for competition, but also is right next door to a Ziegler Tire store, a well-run 22-outlet chain MTD lists as the 62nd largest tire dealer in the country.

He believes none of the mega-retailers threaten to be "a death knell" for the little guy. "If you know the business, give extra service -- especially to regular customers - and they'll stay with you. Where else would they even get an occasional free oil change when you've got the time?" he asks.

Cheryl Lentz, owner of Lentz Tire & Service in Molton and Caddo, Ala. says she has to accept Wal-Mart as a mixed blessing.

"They even had to alter our store driveway to accommodate a new Wal-Mart that opened across the street." But she's philosophical about it. "They put in a new traffic light, and that stops traffic right at our front door.

"We're in a farming area with a lot of rural roads. Maybe half of the tires that come in have stud or lug problems. Wal-Mart won't touch 'em so they come to us. "We've had employees hired away by Wal-Mart and after about a month they're a tire shop manager. You go figure."

Kevin Edens of Sherwood, Ark. has a corkboard on the wall of his Sherwood Tire Service store, an American Car Care Center outlet. On the board he posts his tire prices alongside those of similar tires sold at Wal-Mart. If that's what people want, he says, he can match Wal-Mart prices.


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Competing against an 800-pound gorilla Better service gives dealers an edge over Wal-mart - Retail where to get a cheap oil change

"Yes, I charge more for an oil change, but we can get you out in 15 minutes. That should be worth something."

He can get delivery of tires he doesn't stock from three area warehouses "in 15 minutes if necessary" compared to a wait of weeks when the Wal-Mart store orders them.

Edens says he hired a tire shop employee from Wal-Mart with a "four-star hat" from his Wal-Mart training, but said he had to start over in the training process. "The only thing he knew about tire pressure was you put 35 pounds of pressure in every tire that went out the door, regardless of the type." The man he hired actually came for less money per hour, but made out better because the work was full time with regular hours.

Bob Richey, owner of the Goodyear Tire Center in Bellevue, Pa. a Pittsburgh suburb, gets new customers in the door with his excellent service department, then pushes to keep them as tire customers by demonstrating his store's tire expertise.

Fred Allen of Allen Tire Co. in Lakewood, Calif. even takes a shot at discounters on a recorded message while you wait on the phone. "We provide tires based on service and quality, not price," it says.

Kim Myers has Wal-Marts in four of the western Pennsylvania markets where he has Import-Export Tire Stores. His Latrobe-based business, with five stores in Pennsylvania and one in eastern Ohio, was hoping for a 6% increase in sales over last year, but experienced only 2% growth during the first six months of 2005.

Wal-Mart? The economy? Myers isn't sure why his growth was less than forecast through the first half. But he said sales are up almost 7% since then. He feels that trend will continue.

Mike Gilmer, owner of Tire Town in Sulphur Springs, Texas, has hired several Wal-Mart tire people from the nearby SuperCenter and has had to retrain each of them before turning them loose in his shop. He figures many people will notice and remember the differences in service and tire know-how in his small town of 15,000.

Kim Surrat, sales manager of The Tire Mart in Staunton, Va. says most of the shop employees at his 32-year-old store have more knowledge and experience than the managers who have worked at the nearby Wal-Mart in the last few years.

Duane Alton of Alton's Tire Center in Spokane, Wash. says competing with Wal-Mart "isn't as hard as they make out." Five of his 13 stores are close to a Wal-Mart. He says that at his stores' level of tire knowledge and service, Les Schwab Tire Stores are much tougher competition.

Joe Dayton, owner of Quality Tire in Murfreesboro, Tenn. is a Goodyear dealer. But he is irked by the tire manufacturer's policy of providing discontinued or private label-type tires to Wal-Mart with the Goodyear name on the sidewalls. Despite that, he says, many customers who buy them at Wal-Mart come back to his store. He's still got good service and free coffee and popcorn.

He's 53 and has been running his own tire store for 16 years. "I just don't let it bother me anymore," he sighs.

In Hardy, Ark. Charles Ivey has run Ivey's Tire & Automotive for 23 years. He's four or five miles from a Wal-Mart store and calls them "vicious competition." "I give people better tires and service and a better value in the long run, but, with the products I sell, I just try to be where they're not."

Wal-Mart mystery: Just how many tires does it sell?

There is much speculation in the tire industry about the extent of Wal-Mart Stores Inc.'s passenger and light truck tire sales.

Jackie Young, who handles media relations for tires at Wal-Mart's Bentonville, Ark. headquarters, claims the company gets "hundreds" of requests for statistics and survey information each day. "And since we can't accommodate all of them, we don't normally respond to any of them."

The lowest estimate made by one industry analyst is 18 million tires per year. If this is correct, that's close to 11% of the United States replacement consumer tire market.

A top sales executive for a domestic tire manufacturer has a much higher guess based on his estimate of average sales per outlet at Wal-Mart and Sam's. He feels the total could be as much as 32 million!

A top executive of a private brand tire marketer says his sources put the total at 22 to 23 million. Figuring an average of $75 per tire, that would produce annual sales of up to $1.725 billion.

Modern Tire Dealer estimates Wal-Mart's yearly sales fall between 21 to 23 million tires.

Five-step approach: How to compete against Wal-Mart

Over the years, a number of "experts" have produced studies on how best to compete with the retail giant. Some are obvious.

Shop them. The first thing you do is "mystery shop" them. Learn what they do well and take advantage of what they don't.

Don't try to compete on price alone. Most' dealers cannot match Wal-Mart's volume purchase price from manufacturers. Sometimes that's less than independent dealers themselves must pay for the same tires.

Look at the stores in your area. If they're busy selling your product at times when your shop is closed, consider extending your hours.

Specialize. Some Wal-Mart and Sam's employees have no in-depth knowledge of the products they're selling. In something like tires, you can out-sell them with service and professional expert advice.

Give your customers the "extras" they won't get from the strictly-by-the-book Wal-Mart/Sam's operations. Remember your customers' names and explain the benefits they get for the difference in your tire price vs. theirs. "You'll always compete on price with some people," said one independent dealer. "But are these really the customers you need?"

"Sure they've cost me some business," said another. "But I thank them every day because their competition has made me a better tire dealer."

Tiremakers address concerns: How Goodyear, Michelin sell to Wal-Mart

Some independent dealers expressed concern that tire manufacturers' policies in supplying tires to Wal-Mart put them at a competitive disadvantage.

We asked Goodyear Tire & Rubber Co. and Michelin North America Inc. to respond.

Said Goodyear: "It's true some tires we manufacture for Wal-Mart, both those with the Goodyear label and private label lines, are not available to independent dealers.

"However, no distribution channel is more important to us than independent tire dealers, as evidenced by our continued heavy investments in products, programs, training and marketing specifically aimed at benefiting them. This support is a major reason why, over the last few years, our independent dealers' growth has exceeded the company's overall growth in the tire market."

Said Michelin: "All our tires are equally available to all our marketing channels -- big and small -- and our fill rate is 90% across the board.

"Only two lines, the Symmetry and Select LT labels, are sold by Wal-Mart, and they account for only 2% of our total tire production. Moreover, we invest heavily in marketing support and training for our independent dealers."

Offbeat approach in Ohio: Palcic wows 'em with good ole boy charm

You'd have labeled tire dealer Bob Palcic a likely goner when Wal-Mart Stores Inc. opened a huge SuperCenter two miles down the road from his shop in 2000.

And Palcic, who owns the unimpressive-looking, two-bay Tri County Tire & Automotive Service in Navarre, Ohio, admits the new competition hurt at first. But he claims most of the customers he lost have long-since returned. And others followed once they discovered the fancy layout at Wal-Mart's Tire and Lube Express can't make up for its sometimes poor service and lack of tire expertise.

So today, Palcic, a laid-back, chain-smoking "good ole boy," can chuckle about his experiences in competing with Big Brother. After all, he has been in business at the same location for 41 years. "I'm not getting rich," he quips, "but I'm earning a living."

On a serious note, he'll tell you he couldn't have survived Wal-Mart and other competition for more than four decades in a small town and rural area if he didn't treat people right.

"Hey," he yells at a customer who happens to be leaving the store, "tell this guy why you come in here."

"I've been coming here for years," stammers the woman, much taken aback. But she warms to the subject. "He takes good care of us. We get stuff we can depend on at prices we can afford. And if we have a problem with the car, he'll find it and fix it without trying to sell us stuff we don't need." Before leaving she leaned over and whispered, "Don't mind him. He's really soft-hearted."

She had come in to buy tires, but didn't seem to know or care what brand he'd put on.

Palcic said he had given her Deans. "They're good tires for her type of driving. And they didn't cost her an arm and a leg."

Palcic's business approach takes some getting used to. The walls of his tiny waiting room are covered with funny slogans and smart remarks. He's obviously having fun, joking with customers and his technicians and suppliers and anyone else who happens to walk in. "Well, most days are fun," he says.

Seated on an overturned oil container in his less-than-spotless tire shop, Palcic tells of fixing lug nuts banged up at Wal-Mart's tire center and replacing missing tire valve caps that have disappeared in its shop. Usually this is done at no charge. Grateful former customers and prospective new ones have long memories for things like that, he believes.

Palcic says he has turned down requests from Wal-Mart's tire shop to supply them with tires they didn't have in stock. He once went up the road to have his oil changed there, just for fun.

He says he waited two hours for the work to be done. He doesn't think they were that busy. Rumor has it, he claims, that they do it on purpose so customers have plenty of time to shop in the rest of the huge Wal-Mart store, located in a rural shopping center southwest of Massillon.

Much of Palcic's customer base consists of small town, blue-collar residents on tight budgets. "I'll get them any brand of tires they want," he says. But his major brand is Dean tires made by Cooper Tire & Rubber Co.

For good customers, he'll sometimes throw in a quart of oil if the dipstick shows a need or rotate the tires whether he sold them or not. He and his two techs always check the brake fluid and routinely look under the hood and under the car for other problems.

For special friends, he passes out black T-shirts with the shop's name, address and phone number on the back along with the tongue-in-cheek slogan, "We cheat drunks and tourists."

Someone stole a sign he once had on display. It said something like "We cheat other people and pass the savings on to you."

Though small and nondescript, Tri County Tire isn't that hard to find. It's on the main road from Massillon to Navarre, and there's a yellow 1940 Chevy pickup truck out front.

"No, it doesn't run," Palcic says. At first he couldn't find the parts to fix it and now that he has the parts it's tough to find the time to install them. That's one sign Wal-Mart competition hasn't hurt his business too much.

And the place soon will be even easier to find. Thanks to his sales volume, Cooper Tire has sent him a spiffy new sign with his tire shop's name on it as well as Dean's.

Now if he can just find the time to put it up.

Lloyd Stoyer retired as editor of Modern Tire Dealer in 2000. That same year, he was inducted into the Tire Industry Association's Hall of Fame. He resides in North Canton, Ohio.

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