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How Data, Analytics Can Boost Profitability for Tire Retailers

By collecting and analyzing data about a dealer’s sales history, inventory levels and market demand, data and analytics platforms can analyze the performance of each dealer’s store and recommend actionable improvement opportunities.

Every tire dealer wants to better understand which tires customers want, how to improve sales through a better stocking strategy and how to maximize overall profitability through pricing and program alignment. Ultimately, they want to drive more traffic to their stores. Because of new technology, achieving these goals right now may be easier than you think.

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There are sophisticated data and analytics platforms in the market that can help dealers get the right information to accomplish all of these goals. By collecting and analyzing data about a dealer’s sales history, inventory levels and market demand, these platforms can analyze the performance of each dealer’s store and recommend actionable improvement opportunities.

The platforms are particularly valuable for small, independent dealers who don’t have in-house IT teams or the time to deal with various agencies and consulting companies. By analyzing one store – or several stores owned by one dealer – these platforms can provide recommendations for the tires a dealer should be stocking. And when a retailer wants to open a new store in an unfamiliar market, the platform can help determine which tires to order, making their inventory highly productive from opening day.

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According to research from American Tire Distributors (ATD), 85% of tire retailers report that data and analytics has the potential to significantly improve their business. And those retailers that are taking advantage of said analytics platforms are reporting profit increases of up to 40%.

You may ask, “If this capability exists today, why isn’t everyone using it?” While inroads are being made, there are several obstacles to overcome. For starters, much of the tire industry still runs on older software, making automation such as automatic replenishment and data analysis difficult. Even if we overcome that hurdle and data can be extracted, many of the existing platforms are difficult to use or are simply too generic for our industry.

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However, tire retailers are not the only ones struggling in the analytics area. Over the last 20 years, the number of distinct SKUs has skyrocketed and sell-out visibility from manufacturers and distributors into the 120,000 tire installations points has not kept pace. Manufacturers lose visibility once a tire leaves their factory. This lack of visibility, coupled with ever increasing complexity, has led to poor production decisions, low fill-rates, stockouts and high logistics costs which, in turn, hurt tire retailers and consumers.

As a result, the inefficiencies in the replacement tire industry are real and significant. According to consulting companies McKinsey & Company and Boston Consulting Group, $2 billion is currently being left on the table annually by tire retailers, distributors and manufacturers because of stockouts, overproduction, safety stock and unnecessary margin erosion – losses that could be resolved through data-based decision making.

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How These Issues Can Be Solved

Because the technology exists at an affordable price, every dealer can take advantage of these new tools. There are three critical areas where tire dealers can benefit from a sophisticated data and analytics platform.

  1. Inventory & Replenishment

Dealers want to know if the tires they are stocking will sell. For example, what if an analytics platform found that only 55% of the SKUs in a dealer’s inventory actually sold? That’s something you could change.

A data analytics platform can help dealers understand total demand for tires at all store locations, removing unsold tires to free up space for those that sell. The ability to compare sell-outs against market demand will allow retailers to optimize their stocking strategy and significantly increase the efficiency of their working capital. If dealers then bolt on an automatic replenishment engine to always keep faster movers in stock, they will never miss a sale and have more time for their customers (or their families!) instead of ordering the same products all the time.

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One dealer who is using a sophisticated data analytics platform told me this story: “If I have a store with some shelf space, my data/analytics software allows me to see what the top 10 sizes are based on my sales history and market demand. That tells me which tires I should be filling that store with. This tool can replace a lot of the work I do manually, which saves me time and is good for business.”

By using sophisticated data, this dealer was able to identify and remove more than 700 tires in one store to make room for more lucrative tires.

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  1. Pricing

It is hard to price tires correctly. It’s even harder when your customers are often doing their own research and coming to you with lower prices they found online or from your local competition. And taking time to do your own research is often time-consuming, expensive and unreliable.

Dealers can now use analytics to compare prices to local, regional and national competition, while analyzing relevant price statistics for all SKUs. Seeing how your prices compare to others by brand, tire size and style enables a dealer to execute a comprehensive pricing strategy and make changes instantly. Doing so will prevent surprises from low-cost competitors and ensure no money is being left on the table.

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  1. Profits

Ever wonder if you’re getting the most out of your vendor benefit programs? Or how to develop a strategy to make the most profits possible?

Using dealer input and complex algorithms, analytics can determine which tire brands to sell for maximum profit from front-end sales and back-end incentive programs and promotions. With this information, a dealer can set preferences for selling particular brands; participate in all phases of a vendor’s benefit programs to receive maximum compensation; optimize their sales mix; and create target sales goals based on data.

To demonstrate the benefits of data and analytics, recent ATD pilot programs involving several dealers have been conducted to help improve sales and boost profitability. In one large pilot program involving several retailers across 35 locations, participants’ back-end rewards increased by 400% over a 12-month period.

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Impact on Dealers

By addressing these three areas, we believe dealers can achieve the following results:

  • Improve inventory stocking strategy and turn rates, keeping inventory profitable and increasing sales and automation;
  • Increase volume and margins through more frequent and informed pricing decisions based on real-time competitive intelligence;
  • Increase profits by developing an optimal brand, style and SKU sales strategy, potentially unlocking a significant amount of money in front- and back-end margin opportunities.

With these potential benefits available today, it makes sense for dealers in the replacement tire industry to begin exploring and considering using a data analytics platform to improve their business. By reducing the time needed to generate an assortment strategy and significantly lower inventory holdings costs, these tools will give just about any dealer a competitive edge – making their inventory more productive, their store more profitable and give them more time to build relationships with their customers.

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