New Brands: 6 Month Update (by Jeff Short)

It’s been a little over 6 months since we announced the additions of Hankook, Toyo, and Yokohama to our lineup. The K&W crew has been busy learning all about our new brands. Thinking about how they compliment our existing line up and what new opportunities they might have for our customers. Initially it’s intimidating when you look at a catalog with so many different types of tires, but after a little while you learn the key lines. We thought it would be helpful to share some our findings with you.

Hankook

Hankook sales are tracking like a rocket. Straight up. There seems to be an incredible amount of raw market demand for their products.

Currently we see the following lines leading the way in passenger tires:

* Optimo H724 (broadline 70,000 mile S and T-rated)

* Optimo H426 (luxury H and V-rated all season touring, 60K warranty)

* Optimo H727 (Hankook’s flagship 100,000 mile T-rated touring line)

For light truck and SUV:

* AT-M leads the field. Consumer Reports call this the best deal going in an all-terrain tire.

* Next is their H/T line that goes by RH-12. Hankook also offers a special CUV line called the HP2.

Toyo

With Toyo we’ve seen very strong sales of their Extensa tires. Extensa is Toyo’s entry-level line that performs with other brand’s premium offerings. Toyo recently adjusted their pricing on Extensas and we saw our sales double during the second half of March. As of last week, our data shows that we have 70 dealers buying Toyo products.

Interesting Toyo Case Study With Our Customer

I’d like to give you an example of what one of those dealers is doing with the brand. Craig sells several brands, one of which is Cooper. At the beginning of the year, Craig decided that he wanted to try his hand at promoting Toyo, but only if there was something in it for him. That “something” included making a better margin. Craig decided to increase his standard profit per tire by an extra $15 for every Toyo that he sold. He said, “I’ll be your guinea pig and let you know if this works.” Today I called Craig for an update. I let him know that he had purchased 116 Toyos year to date. I asked him if he had to deviate from his pricing plan. He just laughed and said, “No way.” Then he told me how much it meant to him that K&W’s marketing support team had made him custom Toyo brochures that feature his name and logo. Craig said, “My customers are impressed. They tell me how professional they make me look. It’s like I have the resources of a chain store.” So 116 tires at an extra $15 each, is $1,740 in extra profit for the first quarter. Figure in the rest of the year and he’ll make an easy extra 8 to $10,000 in profit.  And, one more thing you should know… Craig’s Cooper sales are up 55% this year.

Yokohama

Yokohamas continue to sell well throughout our regions. The standout bestsellers are the Avid Ascend and Avid Envigor lines. The Ascend is Yokohama’s best touring tire. The Envigor line occupies what Yokohama calls a “Grand Performance” category. That means all-season, high performance, low rolling resistance, and long tread life.

Avid Ascends, Avid Envigors, Geolandar G055s, and Geolandar G056s. If you know these 4 lines, you are off to a running start with the Yokohama brand.

Cooper

Those familiar with K&W know this is our bread and butter brand. Though we have many years of experience with Cooper and aren’t learning from scratch about the lines like we are our new brands, we still see interesting trends and transitions. Here are some:

* The Discoverer SRX is really taking off and looks to be the perfect replacement for the CTS

* Discoverer S/T MAXX sales have doubled since last year, of course all the new sizes help

* CS5 sales are strong—The transition from the CS4 was a little rocky for some dealers, (always touch and go when replacing a “best seller”) but things smoothed out once we got a handle on the mounting issue. Click here for more on mounting CS5s: CS5 Mounting Update

If you are new to K&W, Cooper is our “go-to” brand. For a quick initiation, check out the CS3 and CS5 for passenger cars and for light trucks check out the Discoverer SRX, H/T, and the AT3.

We hope this information is helpful and maybe gives you something to think about. If anything here strikes an interest and you’d like to know more, or if you just have some questions we are happy to help. Just say the word and we’ll help you think through the best options and opportunities.

Goodyear’s New Sales Plan-Is It Worth The Trouble? (by Jeff Short)

Goodyear is going to sell tires direct to consumers online. Their stated motivation is getting their market share of the 80 million “Millenials” who prefer to shop online. Let’s consider the implications for the tire industry and your independent shop.

This plan was unveiled at their January 2015 dealer meeting and involves participating dealers getting an installation fee and a commission for their services instead of actually making their normal markup on the sale.

As soon as I read this news a few things came to mind:

  1. This is big news
  2. If it sells tires, then Michelin and Bridgestone might not be far behind
  3. Some dealers are going to be upset.

So far, numbers 1 and 3 were dead on. I’m not writing this with any ill will towards Goodyear. I know a lot of people that have made a great living selling their products. I do know that this is a major step to take with the hope that they’ll get a piece of the online tire business, which in the US is only 6% of the market. According to Modern Tire Dealer magazine editor Bob Ulrich, that share hasn’t really increased much since 2008. (Maybe that’s because tires might not be the greatest thing to buy online. I get books, skateboards, and toasters, but tires are a little more complicated.)

And then you’ve got to go face the INSTALLER. You know, the guy that tells you that you really should have bought them from him and gotten a better price, different tire, saved the shipping expense, gotten the proper size/ load range/ speed rating and asks the ever popular “take yer ground beef to McDonalds too? So Goodyear is hoping that going directly after the online shopper is worth aggravating their dealers. But as Kyle Stock of Bloomberg News says, “…it’s not a riskless strategy. The Akron-based tire maker’s gambit could run roughshod over it’s best sales staff: the thousands of small businesses… that can easily nudge a customer from one manufacturer to another.”

From the comments I’ve heard and read, the nudging has commenced. Here are just a few examples: Bill Denvir, a tire dealer from Connecticut wrote a letter to Tire Business saying that over the past 10 years independent dealer’s market share has eroded from car dealer, big box store, and price club competition. He states that Goodyear’s plan would convert him from being a tire dealer to “simply be a convenient installation station for online retailers.” He further states, “The Denvir Tire Shop will no longer sell any Goodyear product.” It’s not just him. So far it’s been a negative with everyone I’ve spoken with. I asked Mark Pollard, who operates 3 Wilson Tire outlets in New England, for his thoughts. He said “2 thumbs down.” When I asked if I could quote him, he said “sure, but make it 3 thumbs down.” So who are the potential winners in all of this? My best guess is the “Tier 2” players. And not just Cooper, Hankook, Toyo, and Yokohama because we sell them. General, Conti, BFG, and Firestone might be where dealers turn. I know the reps that supply us with our brands all tout PROFITABILITY as the number one reason why a dealer should consider them. Time will tell if this all blows over, or becomes a turning point. Independent tire dealers, as the name implies, can be awfully independent. Smart manufacturers would be wise to remember this.

Can You Look at My Tires? (by Jeff Short)

That’s the question I hear from my friends and neighbors regularly, and I’m in the wholesale business. You must get it all day long. I wonder how you and your staff answer that question.

Do you just quote state law for fear that the customer will think anything else is you just trying to make a buck off them? What if there was a way to provide your customer with helpful information that will build their trust in you AND provide opportunity for replacing tires sooner than 2/32nds (the law in 42 states)?

Many reliable sources say that tires should be replaced before that state requirement. Consumer Reports magazine stated that their tests indicate tires should be replaced at 4/32nds. The difference in wet braking tests was huge. Independent tests conducted by The Tire Rack confirm these findings.

So, how do you use that information? In a day when many of your customers research these types of questions online, you can offer them this information. Two of the most trusted sources recommend earlier replacement. By sharing this info, you show your familiarity with the online sources they are reading. You show your expertise in a way that doesn’t make a hard sell, but gives them trusted information to make their own choice based on safety and expert recommendation. Many will probably still say, “What would you do?” People will not be surprised when you suggest that tires should be replaced before they are “illegal.”

In conversation with our dealers, I found that some are using a 2,4,6 recommendation. They state that tires are legally worn out at 2/32nds, but should be replaced at 4/32nds for proper wet traction. Below 6/32nds the tires are ineffective in the snow…. “will you be driving this vehicle in the snow?”

What is your policy? Is someone inspecting every vehicle that enters your shop for service? You have to be prepared that if you do not recommend replacement when warranted, the next shop might.  I think many independent dealers want to do the right thing by their customers, so they tend to want to let them slide by (no pun intended) until fall or the summer vacation trip instead of just coming out and saying it’s time for new ones. I’m sure the chain stores have a checklist and someone is asking for the sale.  So here is a way to take it off of you.  Just say, “You have a little to go before they are illegal but Consumer Reports and Tire Rack say they should go at 4/32nds of an inch, so let’s do the right thing and get them off.”

Don’t Hold A Grudge (by Jeff Short)

What exactly is a grudge purchase? The dictionary defines grudge as “resentfully unwilling to give something.” In our case, someone is resentfully unwilling to give their hard earned cash for some smelly black rubber things that the guy at the shop says need to be replaced. A new Xbox, Coach purse, vacation, smart phone? Now for those they are willing to shell out some bucks, but not tires. Of course, there are exceptions. There is the sports car driver that wants the latest from Yokohama or the guy with the raised 4X4 who is happy to spend big on the new wheels and Toyo Open Country RTs. But they are just a slice of the tire buying public. So yes, most tires are purchased grudgingly. You should know that marketing professionals actually study how to better sell grudge purchases. There are actually easy to follow steps that will help you sell more tires, and here’s the kicker… you can sell better tires and make more money.

Actual market research shows that the easiest sales are made by quoting only the lowest price goods. The customer asks for the product, and the salesperson quotes the cheap stuff and tells them “it will do just fine and look at how much you are saving.” This salesperson didn’t have to waste too much time qualifying needs or negotiating the price, let alone studying up on features and benefits. But it doesn’t have to be this way, if you and your crew followed a simple sales process.

Let’s start with Goodyear’s research that shows over 80% of tire shoppers buy whatever the salesperson suggests. It’s just human nature. When faced with having to make a decision on something you know nothing about, you tend to go with the advice of an expert. Just like, if your doctor says you need prescription ABC, you’ll most likely not argue for XYZ. Sure, your tire customer will go online and try to read up, but they’ll take your opinion if you say something like, “you don’t want that brand, they’ll shake your fillings loose.” You are the one with all the power. People are price sensitive. Especially over grudge purchases. But don’t forget that Michelin, Goodyear, Bridgestone, and a few other premium brands make up over half of the replacement tire market. There are huge opportunities for dealers to be making exceptional profit margins on tier 2 brands like Cooper, Hankook, Toyo, and Yokohama. You just need the discipline to have a process and stick to it.

Here are a couple steps to get you started:

1) Adopt a “go-to” brand and learn to sell it well. If it’s one of our brands, we are happy to help. You’ll get better and better at presenting it and your confidence will show.

2) Qualify the buyer to find out what they liked and hated about their old tires. This step will give you insight on what to suggest and which features to play up.

3)Quote the good stuff, and tell them why you’d put them on your car if you were them.

Don’t be thrown off when they say they’re “shopping on price.” What else do they know? They’re saying it to put you on notice that they want a good deal. It doesn’t mean that they want you to research 4 wholesalers websites to find the lowest priced, lowest quality tire known to man. It probably means something more like, “I want a fair price on a quality tire that is quiet, has good wet traction, and won’t wear out too quickly.” That’s what they would say if you asked them the basic qualifying questions. This is all more than worth your time if you have set up your go-to brand with a better profit margin. Extra payback comes from word of mouth advertising that your store gains by selling higher quality tires.

Don’t be afraid to make a fair profit. You and your business are worth it.

What’s the story on the tariff?

We sat down with COO, Jeff Hood and VP of Sales Jeff Short to talk about the all the buzz swirling around the tariff to see if we could shed some light on things.

What is the tariff? What are the specifics?

Let’s start by trying to clarify the root of this whole thing. The United Steel Workers say, and the U.S. Commerce Department has ruled, that the Chinese government illegally subsidizes Chinese tire factories, which is against the world trade rules. This puts other countries and their factories at a competitive disadvantage. The tariff isn’t about propping up the American tire manufacturers. They didn’t ask for this. We all know US manufacturers have basically given up on making low-end tires here. And the ones that they import from China will get tariffed just like everyone else.

The tariff is coming in two stages. The first is a counter veiling duty, which was already put in place in December. It averaged around 12% except for one plant that got slammed with an 80 % penalty. The second part is the anti-dumping duty, which was just announced. This phase assigned duties of a further 20% to 36%(approximately) for some well-known factories and a whopping 88% for hundreds more Chinese factories.

Who is concerned about the tariff and why?

Basically everybody is concerned about it, because almost everybody sells Chinese tires in widely varying quantities. It’s estimated that the current American tire supply includes somewhere between 20-40% of these Chinese tires. As for what the concern is, I think most are simply concerned that they are going to lose their options for cheap tires. If they lose their option for cheap tires, they have to find a replacement, or they fear they will have to charge more to the consumer and think that will hurt their business.

For those that are concerned, do you have any advice regarding their concerns?

First, I would encourage people not to panic. The sky is not falling. This has happened before and it will affect some things, but in the long run things will settle down and the tire industry will move on just fine. The biggest thing for people to realize is that this tariff is a completely level playing field and is going to affect everybody the same way. So, while there will be adjustments, everyone will be making similar adjustments.

Can you explain a little further about why it’s going to be what you called “an equal playing field” and why that should ease some of the concern?

Think of it this way: It’s like a grocery. All grocery stores have name brand items and off-brand or generic brands. So you can walk into the store and buy Oreos for maybe $4 or you can buy the off-brand cookies for $2.75. Everybody knows the Oreos taste better, but a lot of people are willing to pay the lower price for a chocolatey cookie, even if it’s not as good. Well, imagine if all grocery stores in America found out they would no longer offer generic brands. The cheaper option was going to be removed. That’s kind of like what is happening with the tariff. The cheaper option is going to go away, across the board. Nobody is going to have a secret stash of the cheap stuff. So everybody will have to pursue other options.

So, then let’s talk about those other options. What do you think people will do to compensate for the loss of the cheaper tires?

What do I think people will do…..or what would be the best thing for them to do?

Let’s start with what you think people will do…..

Ok, I think people in the immediate moment will scramble to search out all the remaining cheap tires from China that suppliers have until they run out. Once that option is gone, then people are going to search for other cheap options from offshore countries other than China—-so the search will move to find the “best” cheap option from Malaysia or Vietnam or wherever.

Ok, then, judging from your clarifying question you don’t think what people will do is the best option, so do you have some advice for them as to a better option?

I do, but it opens up a bigger topic for the industry.

Get us started and let’s see where it goes….

Ok, I think there is a big opportunity here. There is an opportunity to sell people better tires. But as I say that, I really am aware of a couple things – 1) I’m aware that this is a topic that people don’t necessarily agree on—a lot of guys will hear me say that and think it’s easy for me to say. 2) I’m aware that me saying that sounds self serving, given who K&W is and what we do.

Well, those qualifications noted, do you really believe there is an opportunity to sell better tires? Do you believe that opportunity is more for you as a WD or do you actually think it’s an opportunity for the independent tire dealers?

No, I really believe it’s an opportunity for the independent tire guy–our customers or potential customers. But here’s the thing. It means that we have to get over a hurdle—a big one for the industry. The guys selling the tires will have to realize that when the consumer comes into to buy tires and says, “I need cheap tires” or “Give me the cheapest thing you got.” … he doesn’t actually mean that.

Well, that sounds like you’ve got some explaining to do……

Well, I’ll put it to you this way: If the old adage is “the customer is always right,” then my qualifier would be that he doesn’t always know what he wants. We talk to our customers all the time who tell us that people come in and say the same thing, but if the guy behind the counter takes a moment to explain the purchase they are about to make and the options, they very rarely actually want the cheapest thing you’ve got. But that’s where the genuine selling of your product comes in—and I don’t mean that in some kind of underhand way. I mean that there are huge advantages and huge reasons to spend a little bit more on better tires and they are good options out there, but it’s not the easiest path. It takes some preparation and some work. But in the end not only will it be better for your bottom dollar, your customers will be more satisfied. Everybody that we know who does it well, or reasonably well, tells us that their customers end up happier.

This sounds like a bigger topic, maybe we can do a follow up and come back to this at a little more length. For now, to wrap this up, what would tell you customers or potential customers about how you at K&W can help them through the murky waters of the tariff?

Well, first, for our existing customers….we’ve been talking to many. Many have called or emailed to ask about these things…..our first message to them is “we have your back.” What I mean is that our entire business is built on the success of independent tire dealers….the guys that are most worried about the tariff. So not only do we want them to succeed we do a lot of things to help our customers overcome these types of challenges….. I was reading an article on TireBusiness.com where the president of Monro Muffler said this “If additional tariffs are implemented, we believe that our comps get better, our earnings get better and smaller tire dealers would find themselves under additional pressure, which would create more opportunities for us to make accretive acquisitions.” I guess if that’s how he sees it…..but we see it as the exact opposite. Monro says, “If there are tariffs, great, we’ll just snatch up all the little guys” …. We don’t want to snatch up the little guys; we want to help the little guys take advantage of an opportunity to improve their business in the midst of this challenge.

We have ways to do that. We have people and resources at the disposal of our customers. At the end of the day, it’s going to be in the hands of the tire dealers to call us, but we’ll take time to work with them and help them through it. We are doing it now and will continue to do it. More than a couple times, people are surprised at what options they have through K&W. Give us a chance to help you out. Jeff (referring to Short, VP of Sales) will take any call to help you.

Thanks, guys….we appreciate your thoughts and candor. Hopefully, your customers and other in the industry will find this helpful.

To our Readers: Please give us feedback. Leave any comments you’d like or any questions you have. We are going to continue this discussion with a few follow up posts over the next month or so and we’d love to include your questions.

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