E-commerce comes of age
It seems 2014 could be the year that tyre e-commerce hits maturity. It doesn’t seem that long ago that the NTDA published research showing that the number one method of ordering was phone and – wait for it – fax. Internet was a minority method, but e-mail (a medium of communication that is buckling under the pressure of increased demand for more and faster contacts) was showing some signs of growth. In fact it was November 2005, and therefore will soon be a decade ago. In 2014, virtually every significant wholesale and direct distribution operation is supported by a sophisticated online ordering system that is simply backed by other methods of communication.
Things were vastly different in the retail ordering side of the tyre business, too. Consumers generally purchased tyres in shops in 2005 and while online research took place and e-tailers such as mytyres.co.uk and blackcircles.com existed, consumer demand for online buying was not at the levels that we can see today. A lot has changed. Now the vast majority (one source told Tyres & Accessories it could be three quarters or more) of transactions are preceded by some form of online research.
In the last month or so at least two credible sources have suggested that online buying is as strong as ever, and that a fifth of all passenger car tyre sales could be conducted this way by 2020. Of course these are just best guess predictions, and with online’s market share now said to be something like 7.8 per cent across Europe there is still some way to go, but there are two things we should take away from such research.
Firstly it is not as far as you might think. The UK may still be in the single-digit range, but according to Frost & Sullivan some of the other large mature European markets have already broken into double digits. France and Germany are said to be the strongest in this respect, with 12 and 11 per cent online shares respectively. And the UK is also said to be amongst the fastest growing.
And secondly, consumer confidence in this method of doing business has increased significantly. The fact that consumers increasingly trust their tyre purchasing to a very wide variety of online e-tailers and the fact that such high levels of online pre-sale research are taking place demonstrate this. And the fact that the range of e-tailers winning this business, companies ranging from the largest and most professional businesses to the online sites of long established bricks and mortar retail operations to here-today-gone-tomorrow retailers that simply source from one of the other long supply chains or – worse still – sell part-worns on eBay, sends a message to retailers. Consumers now expect this. Those without it are therefore increasingly likely to die off as other businesses that do run in this way prosper.
Having briefly considered how far e-commerce has come, and balancing ambitious projections of a 20 per cent market share with a quick reality check, I wouldn’t be surprised at all if this channel outperformed 20 per cent by the time we hit 2020. Indeed, there are already signs that etailers are positioning themselves not as part of the market, but integral to the market itself. This kind of market integration strategy – in parallel with a consumer market that is increasingly connected and, crucially, increasingly buying online – could result in a tyre buying marketplace where there is no clear distinction between the online purchase and physical fitting of tyres in a buying environment seamlessly preceded by online pre-research.
The biggest question mark the established tyre business always raised against e-tail was that there was no clear solution for how to fit tyres that are bought online, and that this practical hindrance would always be a ceiling to the significance of tyre e-tail. People don’t need to fit books, which made Amazon successful, and online clothing sales never really took off – they said. Look at the collapse of boo.com, which had so much promise (and financial backing) and flopped – they said.
But now we are in a different context. The barriers are coming down, the boundary lines are being blurred. Leading clothes retailer Next, for example, reports its fastest growth is coming from online sales. This company, which is outperforming peers in the high-street retail business, is winning because it has successfully integrated the buying process. Consumers can purchase clothes online and take back ill-fitting items in-store where they can be tempted to buy something more. Back in the tyre sector, that’s why Blackcircles’ decision to pioneer Tesco-branded “Click and Fit” branches last summer is so significant.
Sticking with Blackcircles as an example, we can also see that online retailers have proved to be quick to adapt to change and to capitalise on it. Labelling legislation is perhaps the best example of this. Based on 2013 sales figures – the first full-year since labelling’s introduction – the company reported in February 2014 that it was able to virtually triple the proportion of A wet grip products sold. Sales of C rolling resistance rated tyres fell from 70 per cent of products to 26 per cent in 2013. All of which points to increased sales of premium products and therefore increased value in the supply chain. And for this reason – if it continues – e-tailers could find themselves in a more powerful position as well as a more valuable one.
Of course there is much that remains to be seen, but while figures like 20 per cent of all purchases being made online a few years time may not be (literally) equivalent to the age of majority, it does seem that tyre industry e-commerce has come of age.