“Smaller retailers often provide a stable environment that delivers more attentive customer service.”
It’s tempting for all of us who read Modern Tire Dealer for news about some of these big tire and service retail acquisitions to think that the large players have some kind of magic formula or secret sauce that allows them to keep growing. Large retailers definitely possess some strengths that some MTD readers don’t have, such as access to capital, stronger bargaining power with suppliers and widespread brand recognition.
But other than these, their larger size brings with it a whole host of other problems, the collective weight of which equalizes the playing fields. The upshot is, they’ll never be able to force you out of business. The biggest problem that large acquirers face is employee retention. Having qualified people work the sales and repair process is the key to higher sales and profitability. It baffles me how large acquirers can continue to do acquisition after acquisition while losing good people from the companies they acquire. I hear frequently how a lot of talented people leave a tire business after the large acquirers buy them.
The day I wrote this, for example, I learned that the new store manager at the nearest tire store by my office just came over from NTB. He started looking for a new job the day the sale of NTB was announced. And invariably when I follow up with former clients after transactions, I hear that good store managers and lead technicians have left. Smaller independent tire dealers tend to have more of a family-like atmosphere and many do a great job of making their companies an attractive place to work, resulting in far lower turnover.
With higher employee turnover comes instability within the store and some large retailers struggle to develop the finely tuned store team environments that deliver high levels of customer service and satisfaction. Smaller retailers often provide a stable environment that delivers more attentive customer service, and they have deep roots in their communities and stronger relationships with their customers. Large retailers typically have structures and hierarchies that can slow decision-making. This bureaucratic nature sometimes can make it difficult to adapt quickly to changing market trends and consumer preferences.
Compounding this, decision-making is often centralized at corporate, when it really should be delegated to the field as much as possible. I heard from one client that sold to a large acquirer that simply hiring a tire buster required three layers of approvals and took up to two weeks. By that time, the installer had been hired elsewhere. In some cases, large retailers can’t quickly adjust their pricing strategies and marketing in response to local market changes. And when it comes to integrating technology into their operations, large companies can be slower than their smaller competitors.
IT projects can take forever at big companies and often come in over budget. Smaller retailers can access numerous IT vendors with applications that they can plug and play into their systems and store processes far faster than larger players, in many cases.
Large acquirers often have higher rent in some acquired locations and certainly have higher overhead due to the size and scale of their operations. In contrast, smaller retailers often operate with lower overheads, which can give them higher profit margins. Smaller tire dealers know their local markets very well and can make better location choices. Large acquirers often buy problem locations. You can’t tell me that if someone buys 100 stores, that 20% or more of those are dogs that might take years to fix, if they are at all fixable. The pressure to expand leads some large acquirers to make expensive, long-term commitments they’ll regret later. There are a few notable exceptions where big players can be viewed as having a secret sauce. Peter Drucker once said, “Culture eats strategy for breakfast.” Les Schwab, with its high average store sales volumes and highly productive, long-term employees, has their culture as their secret sauce.
And in addition to a strong culture, the combined Discount Tire/Tire Rack might be one of the large players that has developed a secret sauce with its combined business model. Last week, I called my nearby large chain tire store to get my favorite brand of tires for my car. After a long hold time and then a fruitless tire search, the salesperson suggested I simply order the tires on Tire Rack and he’d install them. I took his advice but had them shipped to a Discount Tire that was on my drive home. The Tire Rack website was so easy to use and it linked me to a Discount Tire store to make an installation appointment, as well. The tires were received on time two days later and the people at Discount Tire had the tires on within 30 minutes of checking me in. The tire buying experience I had was seamless. Now I know why people love Tire Rack and Discount Tire.
Michael McGregor is a Managing Director at FOCUS Investment Banking (focusbankers.com/tire-and-service) and advises and assists multi-location tire dealers on mergers and acquisitions in the automotive aftermarket. For more information, contact him at [email protected]. This article was previously published on Modern Tire Dealer.