Online retailing for automotive parts and accessories is on a winning march.
And, after a slow start, the demand for tire purchases through digital platforms seems to be catching up as well.
According to a recently published report by Frost & Sullivan, online tire sales accounted for about 4 percent to 5 percent of total e-sales of vehicle components. The latter is estimated to be about $4.6 billion in North America.
While the share of tires may not seem that high compared to some other categories (exterior, performance, braking), Frost & Sullivan predicts that tires will see the highest growth by 2020 among aftermarket replacement components – close to 30 percent compound annual growth rate – and will account for nearly 10 percent of overall parts e-retailing in the U.S.
Product pricing, which tends to be 20 percent to 40 percent lower online for automotive parts, has been the primary driving factor behind e-retailing growth in this segment.
However, the dominant presence of low-cost, “bricks” mass merchants, such as Wal-Mart and Costco, have kept tire pricing fiercely competitive through traditional channels, particularly in the U.S., leaving little incentive for consumers to purchase their tires online.
Comparatively, the growth curve of online tire sales has been very different in Europe, where various estimates peg the market at about 10 percent to 15 percent of e-sales for all parts in the region.
Unlike North America, tire distribution in Europe is extremely fragmented. As a result, the region has seen more activity from independent online tire retailers, such as UK-based Blackcircles.com and Germany-based Delticom AG.
Blackcircles.com, which has followed a clever strategy of partnering with not just local installers, but also large mass retailing chains such as Tesco, has witnessed 25 percent to 30 percent growth over the last few years and is currently expanding its footprint across other European regions.
Delticom, which has e-stores in both the U.S. and Canada, covers most of Europe and generated nearly $600 million in sales in 2012. In fact, the company has also seen double-digit growth till 2011, with a slight dip in revenue last year because of the European economic climate.
While the U.S. has no comparable pure-play online tire retailer of Delticom’s scale, strategic activities from established mass e-retailers such as Amazon and smaller e-retailers such as tirerack.com point to greater growth in this segment going forward.
Even established retail brands are reboosting their online efforts. For instance, Canadian Tire, a leading retailing chain in Canada, relaunched its e-commerce portal last year after shutting it down in 2009 because of lackluster performance.
Increasing connectivity among consumers and their growing willingness to purchase products online are also expected to positively impact online sales of tires.
Current trends indicate that going forward, pricing will cease to be less of a motivator than convenience. More and more customers will most likely purchase a set of tires online and opt to have it delivered either to their address or to a local garage where they can get the products installed. In fact, some websites already allow customers to pay the installation upfront.
Emerging tire aggregator websites such as getmetires.com are aiming to reap benefits from the convenience factor. These online portals do the legwork for potential customers by partnering with various local tire dealers. When customers search for tires on these sites, they can see comparative pricing from available tire dealers, thus minimizing the time and effort required to find the best deal.
In this scenario, established tire aftermarket participants need to focus on building a comprehensive digital strategy – both online and mobile -- in order to realize the full potential of this rapidly evolving market.
Kumar Saha is a senior industry analyst within Frost & Sullivan’s Automotive & Transportation group. Frost & Sullivan, the growth partnership company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today's market participants. For more information on Frost & Sullivan’s Automotive & Transportation research or any questions on this article, contact Jeannette Garcia, Corporate Communications at [email protected] or (210) 477-8427 or visit www.frost.com.
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