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No More Status Quo: How Racing Retailers Are Updating Their Business Models

In order to stay competitive, businesses evolve with the times. Racing retailers who have weathered the economic downturn share some of the recent changes that have improved their bottom lines.

By Ilona French

 

To stay still in racing is to be left behind. That’s not just true for drivers, but also for motorsports retailers, who must constantly stay in front of the pack to win customers, even if that means updating their business models to cope with challenges.

Competing with mail order is a gigantic hurdle brick-and-mortar race businesses face. That’s because many online retailers don’t collect sales tax. However, according to Jim Bingham from Joliet, Illinois-based Winner’s Circle Speed & Custom, that may soon come to an end if the Marketplace Fairness Act passes.

“The bill…looks like it’s coming to pass out of Senate, and then if that goes to the House and passes, that’s going to be a game changer,” he said. “That’s going to help all the small retailers.”

It’s not uncommon to get a customer at the counter who’s spent over $1000 or $2000 and says, “If I order from mail order, I don’t have to pay sales tax.”

“We have to remind him that he’s obligated to pay the state when he pays income tax,” said Bingham. But oftentimes, the racer simply shrugs and says he doesn’t have to pay the tax. “That issue is huge because if I price something for $1000, in my town I collect almost nine percent. That’s $90 that the retailer outside of my state is not collecting and then, of course, the customer enjoys the benefit of not paying it.”

Bingham tries to be competitive on price, but often the company loses that transaction. “It will be a game changer if this bill passes,” he said. “We will then have equal footing with large mail order houses; the biggest company that’s fighting us on this right now is eBay.”

Successfully competing with mail order often comes down to the tricky task of keeping enough inventory in-house. “There’s a lot of guys out there who just don’t carry enough inventory; they don’t have enough pieces that can go on the shelf to make a sale,” said Floyd Clausen at Clausen Racing, Independence, Louisiana. “It’s too easy nowadays for somebody to mail order something—you tell them you can get it in two days or they can get it in two days.”

Catering to both street/strip and circle track applications, Clausen Racing keeps over $1 million in inventory; it has taken many years to get to that point. “The biggest thing is keeping up with the newer, updated stuff,” said Clausen. “There’s so much more new stuff coming out more frequently nowadays than it was in years past.”

Inventory Management

Proper inventory management can produce many unforeseen advantages for racing retailers. For example, Delano, Minnesota-based Lou Fegers Racing Equipment has embraced some of the latest technology by designing a business software program that allows the company to keep track of customers’ sales and do all the invoicing. Most importantly, the company can now truly keep track of inventory.

“With the recession, we really started looking at how to become more efficient in what we were doing,” explained Sara Fegers. “We were all surprised to see that several inventory items that we thought were selling hadn’t sold in a few years. As we looked harder at the pricing and inventory levels that we were keeping, we realized that often we were over buying; some of our inventory items were not turning over as often as we wanted. Before implementing the software, we always looked at total sales and total inventory to determine our inventory turns. Now we are able to look at a part-by-part analysis. This has allowed us to determine that certain product lines are not advantageous to stock.”

As a result of what Fegers learned through the software, the business keeps fewer items in stock that are slow movers and/or low-profit items and instead focuses on making the highest profit margin on items that will move fast. “We also began looking at profit margins on each part, rather than on the entire inventory as a whole,” said Fegers. “This allowed us to know more about the parts we were selling, to make conscious efforts to encourage some items over others. When just asked for a brake pad, with no preference for brand, we could promote the one that had a higher profit margin. In addition, altering how items are displayed in the store helped promote one brand of helmet over another, etc. Focusing our attention on maintaining the same volume of sales, but making those sales more profitable, has impacted the business.”

Within the last two years, the company has used a financial model quite extensively. “While everyone knows that you want to make a profit, it is often unclear how other variables affect your business,” she said. “For instance, we found that lowering our inventory and turning it more often increased the value of the company.”

Financial modeling also allows her to see how different scenarios affect business. “One thing that was really surprising to us was to learn that the one thing we always believed to be the measure of a successful business, increasing sales, was actually bringing the overall value of the company down,” she said. “We were able to work with the theoretical model to adjust our business practices in an effort to maximize the overall value of the business. And the model is unique to our business. The same model won’t work for another business because every business is different. What has been nice is to see what the model shows, implement changes to achieve our goals, and see the real value reflected in the business.”

Building Relationships

Face-to-face, personal relationships are important for many retail shops, where your closest competitor could be a click away, rather than miles away. “Customers want to buy from friends,” said Bingham. “When a customer is looking for something, the first thing he does is start asking his friends where he should go buy it. The small retailer can take advantage of that by building a friend relationship with his customers. In fact, if you show me a small retailer that’s growing, I can guarantee you he knows all his customers’ first names.”

One way to build relationships is to send out old-fashioned birthday cards (or, at the very least, e-cards). “That really works,” said Bingham of the birthday card lists he implemented in his early days of business. “If you develop your customer base as friends, they will bring you new customers.”

At York, Pennsylvania-based American Speed Center, which has been in business since 1973, the team maintains friendly, personal relationships with customers by knowing exactly what type of vehicles they have and what they use them for. “This way we can make sure we are recommending the right product for their application,” said Tony Napoli. “We try to under promise and over deliver, which simply means make the customers’ experience better than they were expecting.”

Like most people these days, most of Napoli’s customers do research on the Internet before they visit his store. The company has responded to this trend by ensuring that they are extremely competitive on pricing. “We used to not always be competitive on pricing, especially if it meant that we were not going to make any profit on the sale,” said Napoli. “But I found out that once the customer made a purchase somewhere else on a product that we were not competitive on, they also purchased other products that we could have been competitive on. Now we do our best to make sure our customers do not go anywhere else to purchase anything. If you let your customer go somewhere else, they might decide they like it there and not come back.”

Don Kreitz Jr. from Sinking Spring, Pennsylvania-based Oval Track Parts has seen an influx of new sprint car customers, which are mainly coming from the RaceSaver 305 series. But special care must be given to novice racers. “You have to really watch what you give them because they might not know the correct name of the part, and they might be asking for one part, but they actually need a different part,” he said. “So you have to really make sure that you give them the right parts because they’ll take the wrong part and put it on and not know any better.”

No matter the scenario, Kreitz Jr. always gives customers the straight scoop, which earns their trust and keeps them coming back. “We probably non-sell as much as we sell to sell the parts,” he said. In other words, if a customer with a meager budget wants to buy something glitzy, but really can’t afford it and really doesn’t need it, Kreitz Jr. will advise him on a more affordable product that’ll still serve the purpose. “New customers coming in probably aren’t quite as savvy as the older customers…. I mean, they really just need help. Most of them do—and just give them the straight story.”

Racers appreciate businesses that maintain ample inventory and operate honestly, helping them avoid the purchase of items they don’t really need. But small businesses that really want to triumph over big online retailers also have to be clever. “You have to find a way to buy right and deliver service or do things mail order can’t do,” said Bingham. “A mail order can’t deliver fuel to your customers. Mail orders basically don’t do a great job with oil either.” And face-to-face, friendly customer service should be a top priority to any salesperson or technician behind the counter.

 

 

 




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