Few companies can boast of a track record of annual revenue growth for fifty consecutive years. One such company is Discount Tire Company, America's Number One Tire retailer. Starting small, with an emphasis on customer service and a decentralized partnership model, Discount Tire has achieved extraordinary success in a highly competitive and unremarkable industry.
By empowering employees through profit-sharing and delegation, Discount Tire’s founder, Bruce Halle, fostered a self-motivated culture of success. By harnessing Robert Cialdini’s principle of ‘reciprocation’, Discount Tire attracted loyal customers through complimentary tire services, driving repeat business while leveraging the powerful marketing tool of word-of-mouth advertising.
The book ‘Six Tires, No Plan’ by Michael Rosenbaum tells the story of Discount Tire’s remarkable success. Success which has come through a combination of qualitative factors, many evident in the other great and enduring businesses we’ve studied; valuing and respecting employees, sharing profits with staff, hiring the right people, exceeding customer expectations, delegating authority to those closest to the customers, fostering a culture of innovation by encouraging ideas from all employees, promoting from within, maintaining focus and managing growth responsibly.
“Over more than fifty years of operations, the tire retailer has never had a down year for sales and has never had a layoff. In 2011, Discount Tire recorded more than $3 billion in revenue and ended the year with more than 820 locations.” Michael Rosenbaum
This blog post explores those strategies and philosophies gleaned from the book that have made Discount Tire such a phenomenal success.
Simple Model
“Discount Tire’s model was very simple: offer low priced products, convince customers they were getting a deal, give them surprising benefits like free snow tire mounting or clean bathrooms and try to build positive word of mouth.”
Competitive Advantages
“A customer might appreciate the deal he got on a set of tires, but customers didn’t know one tire from another. What they did recognise was courtesy, friendliness and a clean store, all of which would become touchstones of the company.”
“Discount Tire has succeeded, in part, by exceeding the generally low expectations that both customers and employees might have about the tire business. Customers don’t expect quick turnaround, clean bathrooms or free repairs. New employees don’t expect a lucrative career, team membership and a company that worries about their families.”
“Much of Bruce Halle’s success flows from his retail focus – each store is uniquely important, each customer is uniquely valuable and each employee is a priceless individual. He never talks to the tire techs about tires, focusing instead on their lives and dreams, families and school.”
“We are in the people business, and we just happen to be selling tyres. We haven’t just adopted this idea as a catchphrase or as part of our vision statement. We live this way. We are truly interested in the happiness of our customers and our people. I train my new hires to take action if they ever meet an unhappy customer. Not just to emphasize, but to take action.”
"A tire is a commodity. You can get one elsewhere. The differentiator is the people. By having people with great attitudes, you make the difference for Discount Tire. We hire people with the right personality and the right attitude. We can always teach them how to change tires. People do business with people they like. Hire, motivate and reward the people that others will like and, no matter what the product, the probability of success rises sharply.”
“Discount Tires success depends on having the right people on the team.”
Accept Mistakes & Learn
“Bruce Halle made as many mistakes as anyone else along the way, but he did two things that most people fail to do: he learned from his mistakes and he made it a practice to blame nobody but himself when things went awry.”
Servant Leadership & A Family Culture
“Although Bruce Halle had no leadership role as he left college, his style of servant leadership was already embedded in his DNA. As a company owner, he would see his employees as extended family to be protected. In turn, he would expect those he protected to look out for others.”
Reciprocation & Valuing Employees
“From the start, Bruce Halle wanted his employees to be very happy. While he cannot recall a time when he analysed the connection between happy employees and good customer service. Halle recognised the strength between the two. Customers who are treated rudely don’t return. Employees who are miserable at work are less likely to treat their customers well. Therefore, he couldn’t keep customers happy unless he made his employees happy first.”
“Bruce Halle’s philosophy is focused - not exclusively - but focused - on what is good for his people and his company.”
“Halle seldom talks about business, preferring to talk to individuals about their lives, families and interests. Halle sees his success as tied to the success of each individual within the organisation.”
“Halle also provides a solid array of employee benefits and frequent gifts as a way of saying thank-you for their commitment.”
“Because the individual employee is the ‘secret sauce’ in Discount Tire’s success, the company is built around the worker more than it is designed around the customer. Hire the wrong people and you’ll find that you can’t beat them hard enough to make them treat customers well. Hire the right people and no beatings are necessary.”
“We’re in business to make money, but the way you let Mr.Halle down isn’t by not selling tires, but by not taking care of the people.”
“Happy employees make happy customers, but happy customers don’t always make for happy employees. So we need to find a way for employees to believe in what they do. It’s in our mission statement to be the best and to care for and cultivate our people. When we show people how much we care, that’s where the magic happens and they become passionate about what they’re doing.”
Employee Turnover
“The turnover rate is more than 80 percent for part-timers, reflecting the rigors of tire changing, but turnover drops to a miniscule 2 percent for store managers.”
Exceed Customer Expectations
"Worry about the customer first and the spreadsheet last."
“It’s not so much that we’re selling tires but a matter of making friends over time. You want repeat customers, people who refer us to family, friends, co-workers .. we want to make them customers for life.”
“The culture of the company is very, very simple. Bruce Halle said, ‘Respect your fellow employees. Look after each other. Take your customers in as family.’ How are you going to treat your customers if you, in your mind, say, ‘That’s my dad coming in?’”
“Halle opted to repair flat tires at no cost, reasoning that this type of pleasant surprise would endear Discount Tire to any customers who happened to walk in with a flat. The free service was popular with customers but seldom copied by competitors.”
“Every transaction at every store involves tires or wheels, but what the company is selling is customer service. If customers aren’t happy, they won’t come back.”
“Discount Tire is built around ‘Who’, as in ‘Who will make us successful?’ Customers can buy tires anywhere, and most customers cannot tell the difference between one tire and another. For a company to excel in a commodity market, product differentiation is a non-starter. Improve the customer experience, however, and brand value explodes.”
“The process of tire sales is relatively straightforward, but Discount Tire’s approach includes extra steps to instil confidence and loyalty in the customer. Making sure to thank the customer and ask them to come back is common sense, at the least, but it’s often missed in retail stores.”
"We need the customer. The customer doesn't need us.”
“If you lose a customer over price, you have to buy them back later. It's better to give them the price to get them to stay in the first place.”
“Discount Tire measures customer satisfaction with a net promoter index, which nets out the difference between customers who would recommend the company and those who would pan it. Only scores of 9 or 10 on a 10-point scale count as positives, and anything below 7 is a negative. Most companies average 5 to 10 percent, according to one study, and a net promoter index over 50 percent is considered solid. Discount Tire consistently scores at the 80 percent level.”
“When a customer is dissatisfied, the store manager must address them personally. At 6.00 p.m. each night, every store manager receives an e-mail with the names of unhappy customers who need to be contacted within twenty-four hours. Ultimately, the managers will convert many of the unhappy customers into lifelong patrons simply by making a personal connection and offering to solve their problems. This is not rocket science or the stuff of MBA dissertations, but it is highly effective.”
Empowerment, Autonomy & Walking the Floor
“The fact is that we are empowered from day one to take care of any customer for whatever reason, to keep them safe and to gain a customer for life.”
“Bruce Halle’s job is not to micromanage but to support and inspire. In fact, supporting and inspiring is the real reason for the site visits. Spending time in the stores, chatting with the workers, he works to bridge the distance that would naturally develop between a nineteen-year-old kid busting tires and the owner of eight hundred tire stores.”
“Discount Tire gives its employees a wide circle of latitude and a small number of rules that allow no deviations. Steal from the company, abuse your employees, or mistreat customers, and the exit door is wide open.”
“The corporate office doesn’t decide which products to promote at the store; that decision is left to the store managers as well.”
“Bruce Halle was a management-by-exception type of leader, relying on his people to do the job they were hired to do and stepping in only when something was askew.”
“Another mistake Bruce Halle won’t make is overloading his store managers with mandates from the corporate office. Contrary to general business practice and theory, Discount Tire is built around its employee and the individual store. Stores are treated as independent operating businesses, each with a mission to delight the customer. Corporate meddling can get in the way of success as the store level and, by transference, the entire company.”
“The guys and gals in the stores run the company. While the corporate purchasing team works regularly to obtain volume pricing or other breaks from manufacturers, the corporate office won’t tell its store managers which tires to push. The company will arrange promotions, but there is no mandate for any store to participate. “What do we know about what they sell in Lobbock, Texas, or what they should be selling in Lobbock, Texas? ‘We don’t, so we have no business telling them what they should sell. We’re not the customer. The people in the stores are serving the customer and driving our company forward, so we need to listen to them.”
Ideas
“Idea are more powerful and supported when they percolate from the ground up, instead of coming down as pronouncements from on high. Rather than announcing strategies du jour from the home office, Discount Tire relies on interaction among store managers within regions and connections among the regional officers to develop and transmit good ideas.”
“There is nothing wrong with stealing a good idea.”
Golden Rule
“Bruce Halle’s philosophy is to treat people like you want to be treated.”
Ordinary People & Team Players
“The prototypical backstory of a Discount Tire executive includes a lack of specific goals, average or lower-than-average grades and minimal expectations of the job or company. Most applicants are looking for nothing more than a steady paycheck and, maybe, a place to bide their time while they figure out what to do with their lives. In many respects, they look just like Bruce Halle.”
“The search for people with the right attitude led directly to the lost boys. The cadre of young men - and they are almost always men, joining the company often shared a certain lack of focus in life. What separated the keeps from the rest of the pack was a willingness to work hard and to find that focus as part of a team. The team is critical, because the team is bigger than the individual, and a person who believes in the team will often be committed to serving others - including both the company and its customers.”
Promote From Within
“The company starts all its operating employees as part-time tire techs, the people who do most of the tire changing in the bays, or, rarely, as full-time assistant managers. Since Bruce Halle started the company in 1960, this practice has been a sacred promise at Discount Tire. Nobody gets the keys to a store without starting out in a lower level, busting tires. Just like Bruce T Halle. That consistent policy of promotion from within creates enormous loyalty among Halle’s employees. At the corporate office, every operating executive up to the CEO Tom Englert began his career in the back of a Discount Tire store.”
“We’re a promote-from-within company. Everybody knows that in this company you start at ground level. Look at all our vice presidents, our senior vice presidents, all the way up to Tom Englert, our CEO. They all started at the same place. We’ve been around fifty years and we’ve never had a layoff.”
“If I were to bring someone in at a high level without having worked in the stores, I may as well get in my care, drive around to the stores and slap every one of the guys in the face – because that’s literally what I’d have done to them. And I would never do that.”
Free Services
“Over time free services brought in paying customers, convincing Halle that free can be very profitable.”
“It’s all about earning the referral, about the word of mouth, and if you have to give away a tire to keep a customer happy, it will come back to you tenfold.”
“Bruce Halle needed a good gimmick to build his customer counts. As spring arrived, he offered to change snow tires at no cost. Drivers who came in to change their tires for free might be enticed to return when they needed new tires later. The tire-changing service proved to be a winner for Discount Tire, with customers lining up around the block to take advantage of the deal.”
"Nobody gets up in the morning and says, 'What a beautiful day. I think I'll go buy four tires.' They get up and say, 'I have to buy new tires.' It's like going to the dentist.” Because customers tend to view tire buying as a necessary evil, it's not too difficult to exceed their expectations. When Bruce Halle started changing snow tires at no charge, the lines extended around the block. Customers responded, as well, when he offered to repair flat tires at no charge and provided free tire inspections. While many financial analysts might consider such freebies unaffordable, Halle found the free services to be highly profitable, especially when the value of referrals is considered. For the cost of a free tire repair—usually less than $30—Discount Tire can acquire a lifelong customer. While the company might invest $50 to $100 in giving away a tire or two to a cash-strapped driver, that person will come back as a paying customer when he or she is back on firmer financial footing.”
Share Profits with Staff and Don’t Cap Earnings
“Discount Tire Company has no franchises and no equity investors other than Bruce Halle. But Halle wants every employee to think of the store as his own – and treat both employees and customers accordingly. While employees don’t own title to the stores, they do earn the same kind of returns any minority partner might. In addition to base salary, they share in the earnings of the store: they get 10 percent of the first $200,000 in earnings and 20 percent of every dollar above that level. As would be the case with any other owner, there’s no cap to their earnings potential. The deal is simple. Bruce Halle personally scouts out the location of each store, and the company supplies the capital to buy or lease the property, build the store and provide inventory and equipment. The store manager is responsible for hiring, training, marketing, scheduling, customer service and cost control.”
No Commissions
“Halle didn’t want his people working on commissions. He knew from his own experience that commissions created the temptation for extra upselling. At Discount Tires, the most powerful calling card was savings. If customers had the sense they were being lured in by cheap prices, only to be pressured by commission salesmen, the company would suffer. Bait-and-switch marketing would not drive referrals or repeat business.”
‘Responsible Growth’
“With around eight hundred stores in operation, Discount Tire has the bench strength to open eighty to a hundred stores or more each year. But the company’s strategic plan includes a mandate to ‘grow responsibly,’ and the capital requirements are daunting. Instead, the company is targeting forty to fifty new stores per year . The management team has learned the lessons of companies, that, like armies, moved too far ahead of their supply lines. Bruce Halle and his team won’t grow as fast a possible because they are unwilling to spread capital or manpower across too broad a network.”
Tailwind
“Sunbelt states offered substantial promise. Rising populations meant more than simply increased demand for replacement tires. New residents to any state might have no particular loyalty to more established retailers… The decades-long population shift into the Sunbelt states has been a major boon for Discount Tire.”
Headquarters
“At the corporate office, the stores are recognised as the customers who need to be delighted by the home office, just as the buying public must be delighted by the stores.”
“’If you go out and spend an extra million dollars on something,, how many tires do the guys in the stores have to sell to pay for it?’ Bruce Halle asks. ‘We have to fight bureaucracy, fight it, because it’s like a disease that creeps in all by itself.” Bruce Halle might love the people who work for him at the corporate office, but he has a strong belief that oversized corporate staffs can drain the life from an organisation by taking too much control from the people in the stores. Worse, every dollar invested at headquarters is a dollar that can’t be spent on store expansion.”
“In the stores, growth is applauded, but growing headcounts at corporate is discouraged whenever possible.”
“At corporate headquarters, six executives are responsible for overseeing twenty-three regions. The job of management is to hire the right people, immerse them in the corporate culture and get out of the way.”
Store Location
“Pick the right [store] location, and it will support a large team over a period of decades. Pick the wrong location, and the people inside will suffer. ‘I can move the inventory and the equipment from a bad store, but I can’t move the store,’ Halle says simply, ‘It’s not a mistake that’s easy to correct’. While Halle has delegated most of the daily tasks of running the company, finding the right place for Discount Tire’s next store will always be the chairman’s realm.”
“Discount Tire will lease locations when absolutely essential, but the clear preference is to own, not rent. The company owns approximately 80 percent of the properties that house its stores, and with stores that remain in business twenty, thirty or more years, the long-term benefits are clear.”
Store Acquisitions
“Having built hundreds of stores, Bruce Halle has learned that there's much more to real estate than the oft-cited location, location, location. Buying an existing tire store, he says, is seldom the most inspired choice. "When you get somebody else's store, you are getting their reputation too," he warns. "You repaint the building and put a different sign on it, but a customer is driving down the street and sees that tire store and thinks, I had a hell of a bad experience there. I'll never go there again. He doesn't even know it's changed its name or ownership, so that hurts. When we pick up somebody else's store, it takes three times longer to make it profitable."
Focus
“Discount Tire sells tires and wheels but doesn't offer oil changes, alignments or general automotive services. By focusing on a limited number of services, the company can reduce customer wait times and build satisfaction. Training expense is reduced, inventory management is simplified, work scheduling is more predictable and units per man hour can be maximized. By servicing customers faster, the stores can service more customers per day with the same number of employees and work bays, which leverages the fixed investment in each store.”
Closed Sundays
“Bruce Halle pays a price for keeping his stores closed on Sundays, one of the busier days for any retail business, but he wouldn’t short change his employees on one of the few benefits he allowed himself when he opened his first store.”
Fun
“Fun was a critical ingredient for Bruce Halle from day one. If the workplace was fun, people would feel more like teammates, and teammates worked harder to make the entire team successful.”
Summary
Like many other great business founders, Bruce Halle realised that while he sold tires, he was really in the customer satisfaction business. He understood that you’ve got to give to get. His free services endeared customers to the business, provided a point of differentiation from his competitors, and harnessed the most powerful marketing tool of all: word-of-mouth advertising.
Halle placed a paramount emphasis on customer satisfaction, treating customers as friends and addressing any issues that arose promptly.
From day one, Halle structured his business for success. He was careful in choosing the right employees with the appropriate demeanor and he shared each store’s profits with the workers. Delegated responsibility and an uncapped earnings potential added to employees sense of ownership and ensured decision making and idea generation occurred at the point closest to the customer.
This structure enabled ordinary people to achieve extraordinary success - they were trusted, empowered and valued. As a result, a ‘confederation of partnerships’ emerged, resembling a collection of small, entrepreneurial entities. In the words of Peter Kaufman, this created ‘leaping emerging effects.'
These qualitative characteristics, which ultimately define the culture of Discount Tire, are primarily centred on people. Over five decades of positive returns attest to their importance. They can serve as useful markers for identifying potentially outstanding businesses in your own endeavours.
Further Reading:
http://sixtiresnoplan.com/
‘Learning from Les Schwab,’ Investment Masters Class. 2018.
Source: ‘Six Tires, No Plan - The Impossible Journey of the Most Inspirational Leader That (Almost) Nobody Knows,’ Michael Rosenbaum, 2012. GreenLeaf Press.
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