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Tyre retailing: so how’s the industry travelling?

Sarah Stowe

So long as vehicles are on our roads tyres will be too. That must mean that business for tyre retailers will always be good, right?

Well, it’s a little more complex than that.

People are carpooling like crazy nowadays to reduce fuel and maintenance costs, and people are buying much smaller cars as well. The funny thing about smaller cars is that they do these two things very well: they use less juice and wear down your tyres at a much slower rate than regular vehicles.

So, John Doe, the guy who carpools with his colleague every second week only has to drive his car for two weeks a month – that’s two weeks that it’s off the road, not using fuel and not diminishing tread.

That’s bad news for tyre retailers because two cars aren’t on the road for the whole month: they’re both only on the road for two weeks of the month.

Sure, that’s a hypothetical arrangement, but it gives us some perspective.

IBISWorld senior industry analyst Andrei Ivanov is the author of the latest tyre retailing report that looks deep into the industry’s success.

He told me that the industry isn’t intimated by carpooling, and doesn’t see it posing any threat to their business operations.

“It’s interesting to think about car sharing. You have to ask yourself the question ‘What does car sharing actually mean?’ It means that people are still driving the same amount of kilometres they’re just sharing the vehicle.

“People are trying to save on fuel and on depreciation on their cars too, and you also have consumers who have bought smaller cars.

“If you’re using your own car or if you’re using somebody else’s car, from the point of view of the industry, it’s not that different. Tyres are still being used,” Ivanov says.

As people are buying smaller cars and carpooling in them – according to the tyre industry – it has little to no effect on their business.

While this might be true, the numbers tell a different story.

Ivanov said that the global financial crisis (GFC) left some economic bruises on the tyre retailing industry, which may have led to several other key factors coming together to create an avalanche of consumer changes: carpooling, small car purchasing and so on.

“At IBISWorld we think the major reasons for the decline in the industry is because pretty much since the GFC several key elements came together and resulted in consumers driving less kilometres,” Ivanov says.

The tyre retailing industry makes about $4.6 billion in revenue with an annualised growth of 2.1 percent from 2010-15.

But from 2015-20 growth is projected to decline to 1.3 percent.

According to IBISWorld statistics there are 2,115 tyre retailer businesses accumulatively making $160.8 million in profit.

If you compare that figure to, say, the childcare services sector’s $495 million profit you can see the contrast in industry growth.

One’s booming – the other is more or less static.

A consumer shift

Ivanov spoke about how people are turning to cheaper tyre alternatives as living expenses continue to rise.

“Revenue is effectively the price of the tyre multiplied by the number of tyres the industry sells, so it is unlikely people are going to be willing to fork out a lot more money for tyres, and at the same time we are seeing that people are driving less because congestion on the roads is increasing and population density within the major cities is increasing, and cars are getting smaller so people are needing less and less tyres.

“So there’s been a higher amount of cheaper tyres coming from china. A tyre purchase for most typical consumers is an immediate expense other than a long term decision,” Ivanov says.

So is tyre retailing something a potential franchisee wants to get in on? For Ivanov it depends on what market your franchise business is targeting.

“I would recommend [potential franchisees] to look at the product line-up that you would be required to stock – whether they’re looking into Goodyear or Bridgestone – they are the franchise and they will provide you with the stock, so effectively the ones who decide which market you’re going to be servicing.

How do retailers compete?

There’s another thing to consider if you’re keen to enter the tyre selling game, and it’s this: you need to be able to differentiate yourself from your competitors.

After all, what’s the difference between a Bridgestone highway terrain and a Goodyear highway terrain?

But despite slow industry growth Ivanov said that most of the major tyre retailers haven’t lost their market share.

“We actually haven’t seen any of the major players lose any of their market share either, so some of the major retailers such as Tyre Power, or Goodyear who runs the Beaurepairs franchise, they still maintain quite a substantial haul on the marketshare.

“Your main differentiation point is to convince the consumer that it’s not the same homogenised product that in fact one tyre does differ from the other. You have to educate the consumer on things like wear and tear,” Ivanov says.