Retailers Go For Gold In 'Tuner' Market

By Amy Gilroy On Mar 24 2003 - 8:00am

Like prospectors in a gold rush, 12-volt retailers are digging into sport compact car accessories this spring, hoping to cash in on the $2 billion market and to boost flat sales.

Key retailers such as Best Buy, Circuit City, Car Toys and Audio Express are entering performance accessories, lured by high margins, an excellent growth rate and a ready-made audience of 16-to-24-year-old males.

Circuit City currently offers a "Roadshop" test market display in 240 stores. Best Buy is considering "a limited roll out" of the category, according to a spokesman and Tweeter is stocking a small assortment. Both Car Toys and Audio Express will enter sport compact accessories this spring.

According to the Specialty Equipment Market Association (SEMA) final statistics for 2002, to be announced April 25, should show 50 percent growth in sport compact car accessories over the previous year with sales exceeding $2.25 billion. In 2001, sales grew by 25 percent to $1.5 billion, which was considered "low growth" and an atypical year, said SEMA. This contrasts to relatively flat sales in car audio.

Paul Gosswiller, merchandise manager for Audio Express, Mobile-One AutoSound and Quality Auto Sound, said traditional car stereo is down 10 percent. "Yeah, there's video, but those two segments are balancing each other out. Performance could add a nice increase."

Suppliers such as Toucan Industries are encouraging 12-volt retailers to join the fray because traditional outlets, like Pep Boys, while stocking the products, do not specifically market and merchandise them to young people. John Moore, Toucan sales VP, said the field is wide open for 12-volt retailers. "About half the business in this category is done over the Internet. It's a consumer market that grew without brick-and-mortar realizing there was a market, " he noted, adding that kids would be willing to pay a premium to purchase products at a local store where they know exactly what they are getting, and can take it home with them that day.

Audio Express will invest about a million dollars — approximately $20,000 per store — to enter the category, with initial orders to be placed this month.

The chain will carry pedals, knobs, HID, conversion kits, tail lights and exhaust systems. "We're not afraid of any of it. We're considering putting in lifts and doing [pre-assembled] wheels and tires," said, Gosswiller adding, " The people who have done it for two years swear by it and say that if they hadn't, they would not be in business now."

Car Toys said it expects to enter the segment in May. The company hasn't determined vendors but appointed a buyer, Carl Stacy, who has been with the company for five years.

"We're going into it very seriously, including installation," said merchandising VP Jim Warren. "It's a very, very close demographic with our existing customer base, reasonable margins, and it can be done with a reasonable square footage commitment."

Circuit City has been testing the products since October and "initial results are encouraging," according to a spokesman. Including special order products, Circuit City carries 1,000 SKUs. The spokesman said a "roll out timetable" was not available.

But retailers who have already entered the market say it's not as simple as throwing a few accessories on a wall. Roadblocks cited competition from mom-and-pop shops that seem to spring up overnight, kids who know more about the market than salespeople and who spend hours price shopping on the Internet, and the need to make a full commitment to the category to make it work.

The Music Store, Greenfield, Mass., carries lights and neon, but the segment has performed, "mediocre to bad," according to co-owner Gene Lacny. The store began offering the products a year ago. "Kids come in and say, 'I can buy that on the Internet for a third of the price. 'We don't market it very well and it's not a top priority," Lacny said. He added that a small performance shop opened up nearby just as The Music Store began offering performance parts. "I don't think they want to make any money because they are selling very cheap." he said.

Mike Cofield, president, Custom Sounds, Austin, Texas, has offered performance parts for three years but said it only became successful in the past four months. "We moved away from the parts into wheels and tires. Now our mix is all wheels, tires and lighting and we're having a great deal of success. Wheels and tires have a much greater dollar volume where shift knobs; pedals and muffler tips are low dollar so you have to sell a ton. Lighting was the area that had the good turns."

David Stein, president, Earmark Car Audio, Dallas, said he is not entering the segment yet based on numerous observations. He said smaller shops, where the owner is very involved in operations, have done well with performance parts, but multi-store operations seem to have trouble getting the sales staff up to speed.

"I've got local competitors that live, eat and breath the stuff and to get our people up to that proficiency level and to get into major installation would take a lot," Stein said. "Among our competitors there are guys who do nothing but European cars and some who do nothing but Asian cars. So what do I bring to the table? Circuit City might sell a couple of pedals and lights as an impulse item but I don't think those numbers add up to anything at the end of the month. Is it worth my time in training the staff, etc., when there are other areas I can go into like RVs, marine and rear-vision?"

Some retailers, on the other hand, have seen their business skyrocket as a result of the performance market. Stereo West, Omaha, Neb., reports that business is still climbing. The store is in its fifth year in the segment, which is approaching $1 million in sales, according to owner Joe Cavanaugh. He said the store has become one of the largest performance parts retailers in the state, and with some vendors, the largest in a four-state area. Cavanaugh said the market is still growing for his company at a rate of about 25 percent a year, and Stereo West is now expanding heavily into truck and SUV parts, which is even more lucrative. As a result, Stereo West just changed the name of its autosound division to Stereo West Auto Sports.

To be successful, Cavanaugh said, retailers have to make a significant investment in training sales people and installers, carry a reasonable product assortment and offer a proper display. "To be taken seriously, you are going to have to broaden. And as soon as you do that you are going to discover that this is much more complex than the 12-volt industry. We have a catalog from one vendor with 300,000 SKUs."