Internet leaves tire traders under pressure
ERJ staff report (PR)
Essen, Germany – Internet buying is having a profound impact on the tire market and now requires traditional dealers to come up with new strategies to maintain the profitability of their businesses, according to Peter Huelzer, executive chairman of the BRV (Federal Association of the Tyre Trade and the Vulcanisers’ Skilled Trade).
The German industry association reckons that internet sales will represent 15 percent of the tire market by 2020 – up from around 10 percent in 2011. However, it notes that other studies predict on-line sales to reach a 20-percent market share by the end of the decade.
The purchasing transparency created by the internet is putting increasing pressure on pricing, leading to a situation, last year, where sales had dropped more than volume units in all tire product groups, Huelzer said at a press conference at the Reifen 2014 trade show, held 27-30 May in Essen.
“The information reaching consumers on the internet is becoming increasingly prominent and consumer behaviour is changing considerably,” Huelzer commented.
And while an increase in services sales had increased gross margins among dealers in 2013, the BRV boss said the overall return on sales of 0.7 percent was “not really satisfactory”.
Faced with increasing price transparency via ‘B2C portals’, Huelzer warned: “We must expect that the product margin of OTC [over the counter] tire trading will be under pressure in the near future. Compensating for this by income from the assembly service is only possible to a certain extent as higher services prices cannot really be enforced for internet buyers that are price-minded.”
Indeed, according to BRV’s analysis, only 8 percent of tires bought on the interent are assembled in the specialist tire trade. And with the move to on-line buying likely to further intensify this trend, the association is recommending that the OTC trade develop new investment strategies across all key activities.
An encouraging trend here, though, is the increasing technical requirements on tire and wheels, particularly around the challenges associated with tire pressure monitoring systems (TPMS).
“Considering the tire and wheel technological developments and the challenges associated with TPMS, qualified tire dealers have a great opportunity to move the garage and after-work dealers to the periphery of the business,” said Huelzer. “TPMS systems are dare quite demanding and also require more servicing and additional knowledge when changing the tire.”