Tier 4 tire brands gaining larger share of aftermarket sales

 BOWIE, Md.—During April, Tier 4 tire brands gained an increased share of the aftermarket, even as overall tire sales plummeted in the U.S., according to research firm GfK U.S.

"What we are seeing is a shift from the Tier 1 brand down to the Tier 2 and Tier 3, and we're seeing the biggest increase in the Tier 4 brands," Neil Portnoy, GfK managing director, POS tracking, said during a May 6 webinar sponsored by the Tire Industry Association.

"Usually, what happens in a 'normal year' is that the year starts out with the Tier 1 brands taking a little bit of a hit and they recover in Q2, Q3 and Q4. But what we're seeing now, through our weekly data, is that Tier 1 is continuing to decline and Tier 4 is showing some significant growth."

During the webinar, GfK shared tire sales data it collected from the point of sale systems of a panel of 3,500 tire retailers across the U.S.

"Retail sales are absolutely rebounding," Portnoy said. "We saw in the last couple of weeks in April, sales have significantly bounced off the lows. This is correlating with the (federal) stimulus checks being delivered to people's bank accounts and people feeling a bit more confident about spending money and buying tires."

For the week ending April 11, tire sales plummeted nearly 50 percent, according to GfK data, but since then the market rallied as stimulus checks were delivered, down 15 percent during the last week of April and down 11 percent for the week ending May 2, compared with the year-ago period.

Traditionally, the first quarter of the year is a strong sales period for Tier 4 brands, but then in subsequent quarters, Tier 4 brands lose market share to upper tier brands, according to Dave Stevens, GfK's vice president, POS tracking.

Among the brands GfK defines as Tier 3 are: Cordovan, Eldorado, Fuzion, Giti, Hercules, Kelly, Nokian, Sailun, Sumitomo, Multimile, Uniroyal, etc. Tier 4 brands are all other brands with smaller market share.

This year, Tier 4 brands garnered an 18.3 percent market share during the first quarter. For the second quarter, which will end June 30, "we anticipate, instead of going from 18.3 percent to a 17.5 percent or 17 percent share of tire sales across the market, we're expecting that (Tier 4) to be more in the 20 percent, 22 percent, 23 percent range, which is a rather substantial increase," Stevens said.

He noted that the shift to Tier 4 is not necessarily driven by price, as tire prices across the board during March and April remained relatively stable.

"It wasn't a price-driven shift downward, it was that the prices were already low and factors outside of that were driving people's interest in purchasing a lower-priced tire," he said.

"A lot of people who may be interested in a Tier 3 product are shifting down toward a Tier 4 product, but they're shifting to a higher end of the Tier 4. ... They wanted the best quality of, for lack of a better term, the opening-price-point group of tire. Since then people have begun to establish what they believe to be their normal and know what they want, know what they expect and prices have somewhat reverted back to normal," Stevens said.

During the week ended April 4, GfK found what it determined was the lowest average selling price for a Tier 1 LT tire so far this year—$203. Over the course of April and first week of May, the average selling price increased to $229.

Conversely, Tier 4 LT tires averaged about $137 for early April and in recent weeks decreased 5 percent to about $130, according to GfK research.

"So, at the very worst of people's concern regarding what's happening around COVID-19, people were willing to spend a bit more for a Tier 4 tire," he said.

In the passenger/SUV tire segment, prices stayed essentially flat during the two-month period, according to GfK.

GfK also noted a sales uptick in tires used on conversion vans and delivery trucks, which coincides with the increase in home deliveries during stay-at-home orders across the U.S.

During the second half of March, when stay-at-home orders were instituted, retail tire sales declined 17 percent compared with the same period in 2019, GfK said. However the light truck tire category outperformed other categories with only a 12 percent decrease in sales.

Since 2016, GfK said it has been tracking independent retailer tire sales trends and noticed a steady decline year-over-year as customers seem to be migrating to big box stores, warehouse clubs or even car dealerships.

Before the national quarantine, independent retailer tire sales had been down slightly every week this year compared with the same period in 2019, GfK said.

Going forward, Portnoy urged tire dealers not to resort to price cuts, and thus, margin cuts, to bolster sales. Instead, they should adopt a strategy by tracking their own sales data and trends.

"There's a lot of fabulous information for tire dealers locked up in their own point-of-sale data and we encourage all of them to fully leverage this data set so they can continue to make fact-based business decisions and then use the data to measure those decisions as the weeks and months roll by," he said.