PHILADELPHIA — A testament to the future of Pep Boys can be found in the numbers. The Philadelphia-based chain reported positive comp-store sales growth of 2.2 percent during its third quarter — something that had not been done since the first quarter of fiscal 2002. And just before press time the company’s stock price hit a 52-week high of $20.50 per share, despite warning Wall Street investors last September not to expect too much too soon. In short, good times appear to be just getting started for the auto parts distributor/ service chain.
The revitalization can be credited to the renewed focus of the company under the direction of new leader Larry Stevenson. You might recall our profile of Stevenson six months ago in June’s cover story (“A hire with a history”). We discussed Stevenson’s past as CEO of a Canadian bookstore chain, Chapters, and made a few predictions about Pep’s future. It was obvious at that time Stevenson was a guy who liked to stir things up, and everything we’ve seen since then proves it to be true.
Since arriving in May, Stevenson has jettisoned unprofitable locations, reshaped the headquarters, hired away several key merchandising executives from CSK Auto Corporation, implemented a branded tire strategy for the service bays, and introduced several new products aimed at driving retail sales growth on a per-square-foot basis. Despite the quick changes, a turnaround will take time, he warns.
“It’s a four- or five-year journey to get Pep Boys to where I think it can be, which is the national market leader in service with a great category dominant retail box,” Stevenson told Aftermarket Business in a recent phone interview. He likens the process to turning around a supertanker, which doesn’t exactly turn on a dime when plotting a new course.
The focus these days is on getting a selection of branded tires in place, something that is presently being tested in the Houston and Denver markets.
Pep Boys has traditionally offered only private-branded tires. Stevenson believes that philosophy put the chain at a service disadvantage over the years, as brand-conscious customers opted to shop elsewhere. Pep never got the chance to sell add-on services that come with selling the branded tires, and it lost opportunities to build customer relations for other services, he said.
Currently the chain is evaluating the services in its bays. Being “all things to all people” has been the plan in the past, but Stevenson does not want to continue offering services that don’t make fiscal sense. Over the next year some of the less profitable repair services will be dropped.
“In this age of complexity and specialization, it makes more sense to focus on a narrower range,” he said, adding that it’s essential for customers to think of Pep Boys for specific services.
The chain plans to rollout a new Customer Satisfaction Index (CSI) at the start of next year. The CSI has been designed to help each outlet measure service quality, as random samples of customers will be called to rate their service experiences. Benchmarks will be set based off of those calls. Service managers also will see their compensation tied to CSI performance, said Stevenson.
“More importantly it will have operational implications. When we are not delivering the appropriate service level, we’ll be able to zero in and say, ‘OK, here’s what’s not happening and here’s what has to happen,’” he said.
With regard to the retail business inside the chain’s 595 stores, Stevenson’s goal is simple — improve sales on a per-square-foot basis. On average, Pep locations have 3,500 sq. ft. of space behind the counter and roughly 8,000 sq. ft. of retail space. Most major competitors have half the retail space, which is something Pep needs to take advantage of, said Stevenson.
In most categories, the chain has traditionally taken the same amount of product as some of the other chains and spread the product over a wider linear footage. “We have a bigger pallet to play with, unfortunately (in the past) we have not used that bigger pallet effectively,” he said.
“The challenge will be to go category by category, line by line, aisle by aisle to re-merchandise the store and free up what we think is not productive space,” said Stevenson. New products, including $99 scooters and a wider assortment of tools, started filtering into the stores at the start of November. The goal is to use some of these non-automotive items to drive store traffic.
Time will tell if Pep’s new strategies can turn the company around. Early indications are that the chain is headed in the right direction.
