By Gary Goms
During an exhibitors’ night held last November at the Congress of Automotive Repair and Service (CARS) convention in Las Vegas, I was button-holed by a representative of a major auto parts retailer who was obviously trying to introduce his company to the independent service sector. Usually, exhibitors can be dissuaded by a mild expression of interest and a polite “thank you” not in this case. I was led by the elbow to a game on the roulette wheel and immediately “won” a few promotional items with the logo of a well-known manufacturer emblazoned on both.
Quite frankly, I was taken aback by the sight of this major auto parts retailer well-known for catering to the DIY crowd by selling at rock-bottom prices and providing “free” diagnostic services openly mingling in the midst of a convention filled with well-informed shop owners. Clearly, this retailer believes that there’s no inherent conflict of interest in competing for the business of the DIFM service professionals and the DIY customers from under the same roof.
Unfortunately, in the minds of many service professionals, there is a conflict of interest, which leaves retailers fighting an uphill battle. Most retail advertising, for example, is geared toward the casual shopper looking for discount parts, tools and home shop equipment. Many retailers also fit an industry stereotype because of quality-control problems with rotating electrical and other product lines and a general lack of competency among staff. And, of course, the perception of the retailer competing against the service professional is more difficult to dismiss if the retailer operates service bays or supplies rental tools to its DIY customers.
So, do these issues doom retailer ventures into the professional service market? I think not, because retailers are beginning to understand that modern vehicle repair is an equipment and information-intensive endeavor. The days are gone when a DIY customer could remedy an engine performance issue with “shot-gunning” the problem by replacing the spark plugs, wires, distributor cap, rotor and fuel filter. Due to modern vehicle design, the professional market is one of the few avenues left for the retailer looking to increase sales of automotive replacement parts.
OLD SCHOOL, NEW SCHOOL
The major stumbling block that retailers face in soliciting the professional market is the old-school thinking learned several generations ago when the DIY customer actually paid a “recommended retail price” at the local jobber store. Of course, traditional jobbers are now competing with retailers by dropping their “user” prices closer to wholesale levels and stocking lower-quality “second” lines designed to compete with the local retailer’s lines. To this very day, the old-school service professional rejects this particular reality, and in many cases, refuses to buy from retail parts outlets because he feels he’s being “under-cut” on prices.
New-school thinking, on the other hand, helps the retailer by rejecting the idea of selling replacement parts at an artificially inflated retail price. In modern shop operations, parts pricing varies according to the costs of acquiring, selling, installing and warranting the replacement part. With this particular strategy, the cost of the part is more relevant than its recommended retail price.
To illustrate a hypothetical case, let’s say $20 of each $100 of service revenues represents the cost of replacement parts. Out of the resulting 80 percent gross profit margin, the shop must pay labor costs and shop overhead. In all cases, this margin must also support any warranty costs not covered by the parts distributor. The net profit is determined by the mathematical relationship between the cost of doing business and the overall service revenues.
Going back to the hypothetical 80 percent gross profit margin, many shops carefully position themselves within their service markets by balancing shop time charges against replacement parts prices. In some instances, it’s more competitive to make the prices of replacement parts the negotiable item in a competitive market than it is to adhere to a specific mark-up formula. In other cases, labor itself might become the negotiable component, leaving the part to produce a larger portion of the shop’s profit.
THE PROFESSIONAL MARKET
It’s important for the retailer to remember that shop productivity is the most important issue affecting the service professional’s bottom line. To illustrate, the failure or poor performance of any replacement part, whether it be an inexpensive fuel filter or a remanufactured engine, automatically translates into warranty and customer satisfaction costs being subtracted from gross profits. In general, a 10 percent failure rate is considered the maximum limit in the professional markets, whereas the same failure rate might be considered normal for the DIY markets.
Getting the right part at the right time is the most important aspect of maintaining shop productivity and profitability. Productivity is gauged, not only by the man-hour of labor, but also by the productivity per square-foot of shop area. For most service professionals, vehicles waiting for parts simply tie up too much expensive shop space. Productivity is especially reduced when skilled technicians find themselves maneuvering around disabled vehicles just to get to the ones they’re working on.
Most production-oriented shops also like to simplify their scheduling issues by moving vehicles through the shop on a same-day basis. Rolling any vehicle into the next day’s agenda because of waiting parts creates an obvious scheduling and customer-relations problem for any shop. For this very reason, service writers can, and do, source parts from multiple suppliers including knowledgeable retailers.
For these reasons, any retailer handling a professional sale must perform at a very high-level of experience and accuracy. The counterperson, for example, must know that an air flow sensor, a mass air flow sensor and an air flow meter are different terms for essentially the same component. The counterperson must also be familiar with the nuances of cataloging in the retailer’s particular product lines.
Lastly, the part must be delivered in a timely manner. Without a prompt delivery service, the sale is as good as dead for any high-productivity shop because wait-time is lost production time. In extreme instances, a smaller shop might dispatch support personnel to pick up replacement parts. Large production shops may hire their own parts procurement people to pick up badly needed parts. If a retailer is planning to participate in the professional markets, providing fast delivery is as important as providing low price maybe more so.
WHY BUY RETAIL?
Parts retailing, by its very definition, is based upon fast-moving parts, high sales volumes and low costs. Although many retailers are becoming more like traditional jobbers by implementing professional service counters and brand-name inventory, the true volume-based retailer has some advantages in selling to the wholesale markets.
To illustrate, big-ticket brand-name items like remanufactured steering gears and rack assemblies might look attractive to the professional installer only if priced low enough and guaranteed to maintain a very low-warranty comeback ratio. Similarly, high-volume, high-reliability components like steering, suspension and brake parts might also increase profitability for an independent shop if the parts are priced “right” and the reliability and availability is maintained at professional standards.
THE CHANGING MARKET
The automotive service market is undergoing some profound changes due to expensive vehicle-specific electronics technology and a shrinking per-mile-driven repair and maintenance market. According to some projections, an independent general repair shop must sell at least $500,000 per year in parts and services to achieve an adequate return on investment in tools, equipment and training. Since the majority of independent shops gross less than $500,000, more small shops are forced to abandon general repair and align with the service specialty or personalized service markets. Shops grossing $500,000 and up tend to align with the high-volume mass markets.
If this projection proves true, a retailer should look at either shop as a volume installer for any specific part or product. A small alignment shop, for example, might be a prime consumer of steering, suspension and ride control products. A larger, mass-market shop might be a prime consumer of practically any product, ranging from maintenance items like fluids and filters to repair items like steering racks and brake parts. In short, selling any particular product line in volume might be the key to retail success in today’s professional independent installer market.
Gary Goms owns and operates Midland Engine Electronics & Diagnostics in Buena Vista, CO.