CANCUN, Mexico—Kumho Tire USA Inc. has made it pretty clear that its strategy in 2005 is to grow by expanding its share of independent tire dealers´ retail business.
However, it does have a few obstacles to overcome. The Fontana, Calif.-based subsidiary of South Korea´s Kumho Tire Co. Inc. is first trying to improve its fill rates, convince dealers to promote its brand and establish openness and cohesiveness with dealers.
For Kumho executives the ensuing growth requires a balancing act between the independent dealer and mass merchandisers. Officials kicked off this strategy to about 70 tire retailers and wholesalers at Kumho´s annual dealer meeting, held in January in Cancun.
A bigger share
Ideally, officials would like Kumho tires to make up at least a third of dealers´ sales, whereas some now are as low as 5 percent.
"(Kumho´s) not going to be the majority holder, but you´re going to have a significant share," said Mike Leverington, director of marketing. "That´s the key. When you have a 5-percent share of business, you´re an insignificant supplier, and you can be dusted off tomorrow and they won´t miss you. You have to be significant enough to their business that they´ll be hurting if they drop you."
But the most significant obstacle to that has been fill rates. David Hudrlik, senior vice president of sales, said fill rates in the second half of 2004 until December were about 80 percent. Light truck tires—whose capacity is not close to demand—were especially culpable for bringing down the average, he noted.
In 2005, Kumho is targeting fill rates of 95 percent, a promise that many dealers said they are anxiously anticipating. The firm is forecasting 20 percent growth in 2005 to $423 million.
Hudrlik said Kumho´s capacity has hovered around 38 million to 40 million units for a number of years. The tire maker recently added capacity with its Nanjing, China, plant expansion and its new Automated Production Unit in South Korea. In 2007, Kumho will open a factory in Tianjin, China, giving the tire maker four factories.
From the automated facility alone, Kumho will have 2 million additional units in 2005. Nanjing, where capacity was doubled, will be producing about 6.5 million units more per year, 25-30 percent of which is slated for the U.S., Hudrlik said. Some of that added capacity will handle the firm´s Road Venture H/T and A/T tires. With these expansions, Kumho´s capacity is about 47 million units a year, or 17 percent ahead of last year.
In addition, Kumho is expanding its warehouse capabilities by nearly 50 percent, to 1.1 million square feet at three facilities.
Relieving these supply problems should go a long way toward increasing Kumho´s share of dealers´ business, Hudrlik said.
"They´re waiting for Kumho to say, ´I can handle your needs,´ " he said. "Once I say that, it´ll be in their product offering. Right now we´re in transition, we´re increasing capacity, so as far as I´m concerned, we need to do nothing to change our customer base. All we need to do is support them more."
When asked what primary reason he would give dealers to increase their share in Kumho, Hudrlik had a simple answer: margins. Hudrlik said he also wants to be open with dealers, forming a more solid—and hard-to-give-up—relationship with customers.
Growth brings prospects
But as Kumho grows, the prospects of original equipment fitments in North America and selling through mass merchandisers loom on the horizon. Hudrlik said Sears, Roebuck and Co. is Kumho´s only big box retailer, and in 2005 Sears will sell some lines that are differentiated from those offered by independents.
"We´ve been very pleased with Kumho and are looking forward to a lot of success," said Jack MacDonald, associate tire buyer for Sears.
Hudrlik said Kumho is in talks with other mass merchandisers, but he declined to name them.
OE fitments also are possibilities. Kumho has plans for OE in the U.S., Hudrlik said, and talks are under way with some car makers, though they were not named.