A New Product Index (NPI) of 20% Says Your Business Is Healthy
The specialty parts industry is one that thrives on new products. For many retailers, WDs and automobile dealers new products are great opportunities to increase sales. New products create excitement with consumers and help drive store traffic.Our research has shown the fastest-growing specialty parts companies have a New Product Index (NPI) of around 20 percent, meaning 20 percent of their total sales are from products first sold in the past rolling 12 months. In this case a new product is defined for manufacturers by the first shipped date and for retailers or wholesalers by the first sold date. Selling non-aftermarket products could make that percentage lower, while selling trendy products or mobile electronics could make that percentage much higher.
When your NPI is around 20 percent it's a good sign you're keeping your product offering fresh for your customers.
Direct Communications, Inc. (DCi), an Iowa-based company that maintains the specialty parts industry's most complete product information database on nearly 200 brands, reported 2,073 new part numbers were added last month alone. Add in the annual spike in new products in the fourth quarter that coincides with the SEMA and PRI shows, and that jumps to tens of thousands of new products per year.
Adding new products can increase your inventory if you don't get rid of slow-moving products and reduce your turns, too. A study conducted by Northwood University showed manufacturers were forecast to introduce more than four times more products in 2007 than they were discontinuing. You have to stay on top of slow-moving products and get them out of your inventory on a regular basis.
What this means to you: Retailers and distributors that stay on top of new product releases in the specialty parts industry have an edge on their competitors.
SPECIALTY PARTS BRING AUTOMOBILE DEALERS MORE PROFITS
It's no secret automobile dealers are having a very tough time of it these days, with many stores operating in the red. What isn't as widely known is how selling specialty parts and accessories can make a big impact on a dealership's bottom line. New vehicle buyers purchase most of their aftermarket accessories in the first 90 days of owning a vehicle, yet it's difficult to find those products in many dealerships.Market research conducted by SEMA showed that automobile dealers rank third in a survey asking where consumers purchase acccessories. Yet, according to Ellen McKoy, SEMA's senior director of dealer relations, automobile dealers rank first when consumers were asked where they preferred to buy accessories.
Aftermarket accessories can greatly improve a dealer's profit on a vehicle. "The maximum profit a dealer can expect to make on factory-installed accessories is 8 percent to 10 percent," said McKoy, "but a dealer can make as much as 50 percent to 75 percent profit on dealer-installed aftermarket accessories." Another limitation to factory-installed accessories is the increase in the MSRP of the vehicle. However, many consumers are willing to spend thousands on aftermarket products.
Trucks lead the way on accessorization, with 62 percent of all midsize and 73 percent of all full size trucks being modified, according to SEMA. The most popular modifications to trucks are air intakes, graphics, and exhaust systems. Some dealerships are getting the message. Research we completed on the 2006 SEMA Show in Las Vegas showed attendance by automobile dealerships increased 10 percent over the 2005 show, and nearly three quarters of them were hunting for accessories.
What this means to you: Dealerships can increase profits and be more competitive by selling and installing products that new vehicle buyers are currently purchasing from other sources.
THE INTERNET AND YOUR CUSTOMERS
There's no question the Internet affects how consumers buy products. What many businesses don't know is how. The U.S. Dept of Commerce reported total U.S. retail e-commerce sales in 2006 grew by about 24 percent over 2005, and at the same time SEMA research showed specialty parts e-commerce sales were flat. Our research shows e-commerce sales at the largest direct marketers are growing at a rate similar to what the Department of Commerce reported and we're forecasting that growth to accelerate in 2008. We're projecting online sales of automotive specialty parts to break $1 billion for the first time in 2007.
In other words, what's happening is that overall sales of specialty parts over the Internet is not growing like it has in past years, and the largest online retailers in our industry are rapidly capturing more market share as this sales channel matures.
For many smaller companies, e-commerce is becoming too complex, and it is difficult for smaller companies to afford to maintain large product databases and manage Web content.
All is not lost for small retailers or manufacturers. Smaller companies need to be familiar with "multichannel customers," a term that describes customers who use more than one channel to research and purchase products. Multichannel customers who use the Internet are significantly more educated and more profitable customers. Our research has shown many small retailers have given up on using Websites to sell, but are having success with Websites to help market their stores and products. Many leading manufacturers are investing in Websites to assist multichannel consumers research products to make buying decisions.
There are also many ways specialty parts companies can outsmart their competitors to increase their visibility on the Internet, whether they're selling online or not.
What this means to you: Three-quarters of the U.S. population now uses the Internet, and they conduct searches nearly seven billion times each month. You might not be able to effectively sell online yet, but you can't afford not to market your business online.
Universal vs. Application-Specific Products
Traditional parts retailers or automobile dealers wanting to sell specialty parts sometimes have a difficult time selling Universal parts and accessories. One reason is that in some traditional businesses replacement parts sales are driven by year/make/model.
DCi's product information database reports that about one quarter of the products from nearly 200 major aftermarket brands are Universal products, meaning they are intended to fit more than one vehicle.
To some traditional companies Universal products might be simple, non-technical products like brushes, floor mats or chemicals, but in the specialty parts market universal products can include spark plug wires, ignition coils, shock absorbers and carburetors.
What this means to you: A traditional retail or wholesale business looking to sell more specialty parts and whose business is driven by year/make/model should be aware of the large number of universal parts available to customers.
Jon Hedges of Hedges & Company is a long-time veteran of the automotive aftermarket specializing in marketing, strategy and research. He can be reached at (330) 474-1650 or www.HedgesCompany.com.
