Warehouse Clubs have racked up respectable sales in the tire-installation category. However, warehouse clubs do not pose a huge threat to the overall business of automotive retailers and specialty chains.

Aftermarket insiders agree that warehouse clubs have captured marketshare in the tire category. According to J.M. Degen and Co., a marketing consulting firm, warehouse clubs had tire sales of approximately $1,055 to $1,070 million in '93.

The tire business is not a do-it-yourselfer business," claims William Julian, vice president of equities research for Mabon Securities. "And tires are a very high-ticket item. It's one category where warehouse clubs can do some damage."

According to a survey by Modern Tire Dealer magazine, warehouse clubs owned eight percent of the estimated share of the passenger retail market in 1993. That's an increase of four percent from 1988. Marketshare was the same in 1992.

Not surprisingly, tire dealerships owned 54 percent of marketshare, but that's down from 56 percent in 1988.

In effort to strengthen itself in the category, Sam's Club recently launched a new merchandising program in conjunction with Price/Costco. The program includes a road hazard warranty and tire-rotation services, featuring a $7.50 charge of lifetime balancing, including tire mounting.

"Whether or not people go to Sam's for a lifetime of tire rotation, who knows, but it's a good deal," says Don Longo, executive editor of Discount Store News.

Strength in `power categories'

While warehouse clubs offer a multitude of products at low prices, including tires, many DIYers may not shop them exclusively for automotive parts and accessories.

"I just can't picture a warehouse club being a destination for someone who is a true DIYer," contends Julian.

But a warehouse club may not want to be a "world beater" when it comes to merchandising and selling automotive parts, points out Longo.

According to Discount Club News, a newsletter published by Discount Store News, warehouse clubs have reduced the space allotted to automotive departments and increased space in food sections.

"Warehouse clubs take a selective approach," Longo adds. "They focus on the top-selling items and let the rest of the world go by."

According to J. M. Degen, warehouse clubs devoted the following stock-keeping units (SKUs) to the following "power categories" in 1993:

• tires - 110 to 140 SKUs;
• motor oil - 10 to 20 SKUs;
• batteries - 18 to 22 SKUs; and
• others, including windshield washer solvent, antifreeze, floor mats, seat covers and garage door openers - 38 to 58 SKUs.

The clubs' sales of parts and accessories have had a minor impact on automotive retailers.

"Warehouse clubs have had an impact on automotive retailers simply because the warehouse club merchandising strategy is built around a `power-category' strategy," says Steve Alexander, president of Automotive In-Store Marketing, Pittsburgh.

Power categories include motor oil, oil filters, chemical additives, tires and batteries.

"Some warehouse clubs are even selling tune-up items," Alexander adds, "as well as accessories including floor mats and car covers."

Says Julian: "Obviously, warehouse clubs can offer competitive pricing. They will probably focus on faster-turning items and give the people the best prices around."

When it comes to most parts and accessories, Julian says the majority of DIYers don't think of warehouse clubs as the main place to purchase such items.

"The service levels won't be there, and the selection won't be as interesting as that of an AutoZone, Pep Boys or other smaller chain," Julian adds.

Alexander agrees.

"When it comes to purchasing hard parts, DIYers would give warehouse clubs very little thought," he adds. "When DIYers do think of warehouse clubs, they're thinking of a very specific category, such as batteries or tires."

Consumers are known to "stock up" on items while shopping warehouse clubs. But Julian points out that DIYers won't stock up on too many parts or accessories.

"You can stock up on canned beans and put them away for a long time," Julian adds. "But no one will buy two mufflers and stick one in the garage for when the other one wears out. No one will stock up on parts like that."

However, Julian says DIYers may bulk purchase items such as motor oil.

"It's always the fastest-turning items DIYers will stock up on," he adds.

There are other factors, too, Julian points out. For instance, if a warehouse club is located on the "outskirts" and an automotive retailer is "around the block," a DIYer may not drive the extra miles.

"A DIYer will not drive far for parts," Julian says. "The average ticket in this industry is about $11. A DIYer will not drive that far to save 50 cents."

Julian claims his research shows a DIYer will travel two to three miles to buy parts.

"If there's a warehouse club in a similar distance as an auto parts store, then the warehouse club may be in contention," he adds.

Although warehouse clubs may have the "lowest prices in town," Alexander points out that everyday low pricing is not always the answer.

"What consumers really want is value," Alexander claims. "They want everyday fair pricing, as opposed to everyday low pricing.

Change on the horizon?

Alexander says some warehouse clubs are becoming sensitive to the issues of value, and well-maintained and well-lit stores. There's talk of warehouse clubs putting in tile floors, improving the lighting and stationing service people on the floor to assist consumers with purchasing decisions.

He admits a warehouse club that offers a more service-oriented experience to DIYers could be a competitive player in the retail aftermarket.

"They will be formidable competitors because they will attract an ever-increasing larger audience," Alexander says.

When representatives from two warehouse clubs - Sam's Club in Bentonville, AR, and Price/Costco in Kirkland, WA - were contacted by Aftermarket Business they did not want to comment on their automotive merchandising philosophies.