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Q&A: A Conversation with Point S USA’s CEO

Following Point S USA’s dealer meeting in Phoenix, CEO Walter Lybeck sat down with Tire Review to talk the state of the co-op and what Point S USA has in store for its current and future members.

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Point S USA had a very busy 2016 converting 182 Tire Factory stores to the Point S brand and generating new technology and opportunities for 2017. The co-op currently operates 206 independently owned U.S. stores in 15 western states and three distribution centers in Portland, Ore.; Denver, Colo.; and Salt Lake City, Utah. Two new Oklahoma stores signed on in 2017.

Along with Point S board members and executives, the man behind much of this evolution has been Point S USA CEO Walter Lybeck. Lybeck initially joined Northwest Tire Factory as chief financial officer in 2010, and was later promoted to CEO in August 2015 after a stint as interim CEO. With Point S acquiring Tire Factory in 2015, Lybeck became the CEO of Point S USA. Coming from an entrepreneurial background, Lybeck’s independence-driven mindset has since shifted to support the independent tire dealer.

Following Point S USA’s dealer meeting in Phoenix, Lybeck sat down with Tire Review to talk the state of the co-op and what Point S USA has in store for its current and future members.

Tire Review: How is Point S planning on meeting its goal to have 700 stores in the U.S. and Canada by 2020? That’s really not that far away.

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Walter Lybeck:” No, it’s three years, three full years. Part of it is continued recruits. We have a little bit more cleanup to do, not very much. Most of our members that we have today are really solid buyers, but definitely, there’ll be a few more that we’ll probably lose. Either they won’t want to transition to Point S or whatever. There’s a handful of members that will resist to the end, and whether they convert or not, I’m not sure.”

“But ultimately, we’ve got two recruiters that are charged with 12 stores each. We’ve got the one recruiter who converted 12 this year and laid a lot of groundwork with larger groups to help us bring some additional groups in as well. Larger groups are a longer play. It’s not a go in and sign up, unlike an acquisition. Monro can go in, write a big check and no problem. Here’s 12 stores, boom. We have to go in, sell them on our business plan, explain to them why they need to rebrand their stores, be part of our group and follow what we do. It’s a different sales pitch, and it’s really designed for members that want to stay independent.”

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“Ultimately, there’s three ways, three ways of growth, and I talked about this last year a little bit…but I still believe firmly we’ve got to focus on increased units within our current stores. We have 77%. That’s a good place to be. I want it to be 90%. When I’m at 90%, I want it to be 92%. I’ll be happy with 92%, but then I want it 94%. I want those extra units every single time because in my view, when members are buying 95% of the units from us, they’re very satisfied with what we do. That’s a good metric for me, for success for how we do. So, always strive to increase in units, and we could get a 10% increase in units by being better with our current stores, and that’s a nice growth.”

“Units aside – because units is the name of the game, more than store count, units is definitely the name of the game – for store count growth, we have to focus within our current network, where we have distribution, to get additional depth of members. It’s easy because in a lot of our areas, there are a lot of independents. So, we can find members to bring in that are near our routes for recruiting. Our 12 members were all, this year, within our geographic territories or next to them. Oklahoma was 2017…That’s the next area of focus, and that’s where the current recruiter was focused this year. But in addition to that, we’ve had a lot of conversations outside the group. Those only work if there’s some kind of a distribution solution that goes along with them. All I can tell you is of all the companies I’ve talked to, none of them are the same. Every single one of them is different, and you have to be creative.”

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TR: Switching gears a little bit, Point S USA released the Winterstar tire last year. How did that launch go?

WL: “It was a very late offering, so we had a very limited buy….The experience we had with it was that it was, for our expectation, what it was going to do in the first year, it was good. It was a good tire, a solid tire. Members can make money on it. It’s their own name.”

“But in addition to being a potential power line for them, there’s also the novelty of having your own tire with your own name on it. No one’s going to come and take that name away from you. It adds a level of legitimacy when a customer comes into your store and you have your branded tire there in front of them to show, especially when it’s a first year manufacture. By the way, we would never have a private label with our name on it that would be a third tier or a fourth tier tire. We would only put our name on a tire that’s a first tier tire, for quality reasons. We don’t want our name associated with potential risky tires.”

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TR: You appear to be pretty transparent and open about what you are up to and the workings of Point S.

WL: That’s my philosophy. I have rarely found a time when I’ve been bit in the butt by honesty and transparency. Unless there’s a danger to someone specifically or if I’m dealing with someone’s personal and confidential information, then I’d much rather be transparent, especially with an owner of the organization. I meant what I said. I respect these guys, every single one of them, from the 1500-unit store guy to the 30,000-unit store guy. Every single one of them is an important member of mine, and I like them, personally. I like their struggle. I like what they’re doing with the communities, and it’s my motivation for being here. I found in my career long ago, if you have a cause in a career, you’re a lot happier in life. That cause doesn’t have to be a social cause. It could be. It could be working for a nonprofit. My last company, I loved houses, and so I worked with a house part company, and it was a cause for me because that company gave back to the community. So, that cause connected well, plus I enjoyed the product. This business, to be honest with you, tires are really not that interesting. They’re black and round… But, it’s an interesting industry. There’s a lot going on. There’s constant dynamics. But the cause, for me, is working for the members. It’s that feeling that you’re really helping a local owner support his community and the families of the people that work for him or her.

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TR: So let’s talk technology. You guys are doing a lot with that, especially with online sales.

WL: “I have a hard time finding anyone else doing it, but you know what, it’s the right thing to do. It’s what customers want. And what we’re doing that’s different from manufacturers is we’re giving the independent retailer a choice. We’re allowing them to control their margins. We’re not trying to dictate those margins to them. The market may dictate those margins for them, but we won’t dictate those margins.”

TR: Where do you see the telematics going? In one of the presentations earlier today, there was talk about trying to figure how to use telematics and GPS.

WL: “Yeah, that was an imagine slide. It’s an area that we are very interested in. I’ll give you my what if, imagine if. My imagine if is imagine you’re riding down the road, and your check engine light comes on. Two minutes later, you get a text from your local mechanic that says hey, “I noticed your check engine light’s on. It looks like you’re overdue for an oil change. You can have an appointment on Thursday and Friday. Can you come in at 2?” Text back, no problem, I’ll be there. I think you’ll get those oil changes. We think you’ll get that service and that connection with the members, and you’ll be providing them a service because you can help reset the lights or whatever else you need to do with them, and you can get the diagnostic codes of the errors that are going on. If you can take a scan of those diagnostics, it could potentially be a pretty significant advantage.”

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“We believe in a holistic solution. That’s the challenge at this point because I don’t want 50 independent solutions for technology. I don’t want a customer car care card here and a telematic thing here and a point-of-sale here and a website here, and then we have to try to integrate 16 different things. Our ultimate goal is to provide the customer the best experience that they can possibly have with a tire and automotive service center. Ideally, if I had a perfect world, I’d have a company that had a telematics with a rewards card connected with my website. You log in. You’ve got a login. You’ve got your name, your user ID, your location, your address. All your cars are in there. You got a history of services connected with our point-of-sale system, which is already connected with our warehouse system for reordering and so forth. That’s the way our website works. If you’re on our current point-of-sale and you’re electing to sell online, a customer searches for a set of tires, it picks the tires that either we have put up top based on vendor agreements that we’ve had, promotions, potentially, or what members would like their tires to be, and it checks the inventory in that particular location, and so, they know the tire’s available right away, or they know that the first available appointment might be on Thursday. As a consumer online, you’re like okay, they’re available Thursday. Great. Send. We charge the card. The credit goes to the store. It’s the store’s bill. The store gets to transact that. They could potentially upgrade the tire or downgrade the tire at the time of the actual point-of-sale transaction. They can add alignments and all the services when the customer comes in. Totally within control of the member. That’s ultimately our goal. It’s not our goal to become greedy with customer information. That’s not our business, but our business is the long-term longevity of independence.”

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TR: Talk a little about Point S’s warehouse situation?

WL: “Our organization is structured in two ways. We had a cooperative organization, which is a wholesaler of sorts. We don’t wholesale to open market, generally. In areas where we don’t have customers and we’re trying to establish relationships, we’ll do wholesale, but mostly, our distribution network is very closed and goes just to members. The inventory and the operation of the business is the cooperative. The buildings themselves are also owned by a different subset of members. There’s a real estate entity and an operational entity, but collectively, we own the Salt Lake and the Portland warehouse, and the Denver warehouse is leased.”

TR: Point S is a cooperative, how does that structure work for your members?

WL: “The cooperative is an organization founded on one member, one vote principle. You could have 15 stores and be 10 million, and you’re going to have the same vote as the dude that lives in a small town and does 1,200 units. So, one member, one vote. Ultimately, the concept is every member within the cooperative supports themselves within the cooperative. There is no equity firm. There is no third-party investment. There’s no Wall Street, none of that. It’s all member owned.”

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“The way we do that is we require our members, when they sign on, to invest in the cooperative over time, with the goal that over a period of 10 to 12 years that they would be a fully invested member and then no longer have to do capital contributions, assuming they’re not growing. If they grow, then the capital contribution would adjust. It’s based on how big you are. The bigger you are, the more capital. The reason, I need more inventory to support you, you’re going to have more AR, and so there’s going to be more demands on the balance sheet of my company.”

“Then what happens is net income comes along during the year. This is what makes us unique and is one of our best sales pitches. If I make $2 million on $100 million in sales, that’s great. I allocate my $2 million back to my members, and they get all the profits. If you’re not capitalized, I keep 80% of it. Twenty percent goes back to you in cash. You always get at least 20% a year in cash. Let’s say you’re 10% of the business, and we made $2 million. You’d get a $200,000 check minus 80%. So, you get a $40,000 check if you’re not invested, and the other amount goes into your capital account as a savings account for retirement. We help build this investment in the cooperative. That investment for the cooperative becomes a retirement for the member when they’re ready to leave. You can’t withdraw on it. It’s a permanent investment until you leave the group… Let’s say I do some really good buys, and I could make a ton of money, and my profit goes to $4 million. It goes back to the members. They get the profit, based on how much they bought. Let’s say I am too aggressive in pricing and I don’t make enough money. Less profit. You got a good deal through the year. You get less profit at the end of the year. That’s the way it works. Ultimately, every dollar we make belongs to the members. What you’re buying when you become part of our organization is essentially being able to purchase inventory at the group purchase rate with the cost of the actual movement of the tires and the administration, and that’s it. No income requirement coverage at all, because that’s yours.”

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TR: That’s pretty unique.

WL: “It’s pretty neat. There’s disadvantages to co-ops and advantages, but the co-op advantage is this is your deal. You eat what you kill and kill what you eat. You could probably use a fishing analogy. It might be a little easier or a little more clean. That’s the way the cooperative is built. The real estate property is a voluntary investment. If you’re a member of the cooperative or a retired member, you can choose to purchase units of our real estate entity, which then is designed to have a net profit based on operating lease expense minus interest expense. That’s all it is. Then, it makes a certain amount per year, and then plus or minus the changes in real estate value.”

TR: Why should dealers choose to go with someone like Point S? How does that help them keep their independence and just have a better business?

WL: “First of all, training. We have the training platforms developed and are getting better every day at those training platforms. We believe that will apply consistent quality standards across our organizations as we grow and as our trainings get better. It was just implemented last year. The quote from my presentations were already over 125 courses developed.”

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“Secondly is software, internet sales and all of those things. If you’re part of our organization… Let me give you an example, a real-life example. A software we were looking at was $3000 a license for a store. For the group, we could buy it for $60,000 for 200 stores. By collectively buying, you can take a $3000 piece of software and get it for $500. What you get is the buying power of the multiple stores, the 200 plus locations. Ultimately, worldwide, the… I don’t even know what the current count is. Over 3600 locations, Point S, international, they’ve grown so fast. We get the advantage of all these group buys and software technologies. We get to develop things on our own that we can pass on to members, and you can choose to implement or not, that you wouldn’t have to figure out on your own. We can provide that insistence on the extra stuff for customers. You’re going to be the best person as an independent, deciding what you’re going to sell and how you’re going to price your product. That’s your job. But we can help you with data analytics for your markets. We can help you with what other tire stores are selling in the area and what kind of margins there are. We can help you with price-competitive shopping with all of our technologies.”

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“Then, you get to be part of a group. You get to provide a customer warranty across a network of 15 Western states. If a customer comes into your store, they have a map to show their customer that says look, if you go anywhere in these states, there’s a store ready to help you, and this warranty is good on any one of these stores. If you’re part of our group, you have to honor that warranty. That is one requirement that we will not compromise on. The customer has to come first. But the most important thing is you’re part of a collective. You have a congregation of like-minded individuals that you can utilize for getting to know new ideas, for trying things out, to just ask about hey, how do you collect your AR, what’s your AR balance, is that good or bad. That kind of business advice is invaluable. It gives you someone you can talk to that’s not trying to steal your business. It’s the same reason I connected with Bruno at Unimax in Canada. I have a partner in Canada that I can talk to about hey, when you do your vendor show, what do you pay for this and that and this and that, and do you make money or lose money, and how do you address your members on that versus this. It helps us really approach things a lot more balanced, and it gives you a sounding board of someone that’s not competing with you, so a true business partner.”

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“Then, lastly, it’s your company. It’s your company. It’s your profit. You can know that we can’t sell out because you own us…. I’m excited about our rebranding process. I would like you to understand how grateful I am for our members and their loyalty to our group in getting converted. It was very meaningful to me. It’s a testament to their loyalty to our group.”

 

 

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