Market Profile: Shop Sales Increased 12.9 Percent from Last Year - BodyShop Business
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Market Profile: Shop Sales Increased 12.9 Percent from Last Year

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That was then …

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When word got around in early 1901 that millionaire
William K. Vanderbilt would pay handsomely for horses his car
hit and killed, local Long Island farmers turned entrepreneurs.
When they spotted Vanderbilt out for a drive, they tipped off
their friends, who then led their old nags into the road. The
farmers discovered that a horse not worth more than $6 as glue
or fertilizer brought anywhere from $60 to $100 when run down
by Vanderbilt’s car!

Not only was this covert operation profitable
for farmers, but also for the shops that repeatedly repaired Vanderbilt’s
collision-damaged vehicle.

This is now …

While not much – if any – collision repair
work is generated by cars mowing down horses (although deer damage
is still quite common!), other types of work keep shops busy these
days.

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And busy they were in 1996.

According to our respondents, shop sales increased
12.9 percent from last year – up from $415,168 in 1995 to an average
of $468,911 in 1996 (with 43.1 percent of sales coming from parts
and 56.9 percent from labor).

But did sales truly increase once
inflation is taken into account? Yes. Using the U.S. Bureau of
Labor Statistics Consumer Price Index, a shop that earned $415,168
in 1995 needed to earn $427,623 in 1996 to keep up with the rate
of inflation (see box for details).

Breaking down sales by categories, shops in
the up-to-$124,999-a-year category had it the roughest – only
35.3 percent of these respondents said sales increased in ’96
(but only 5.9 percent said sales decreased). In all other categories,
more than 50 percent of the respondents saw sales increases in
’96 – and more than 88 percent of shops making more than $750,000
a year experienced sales increases (and none experienced sales
decreases)!

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Perhaps part of the reason these larger shops
had a better year than the smaller ones is that most of these
"big guys" are located in heavily trafficked urban areas
– conducive environments for collisions. Perhaps, too, it’s partly
because these larger shops have more resources – money – to advertise
their services, to buy the most up-to-date equipment, to train
their techs, etc. Perhaps it’s also because these larger shops
tend to be a bit more progressive and accepting of change – in
general – than the smaller ones. For example, instead of battling
insurance companies (about pay, about quality – all valid issues),
most of the these larger shops take a more proactive approach
by having someone on staff who’s skilled at negotiating with people
– and insurance adjusters. Perhaps it’s 100 other reasons, too!

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As for the future, most respondents were optimistic
about where their businesses are headed. When asked if they think
their businesses will be more successful in the next five years,
nearly 70 percent said yes (down from last year’s 75.3 percent).
Respondents with shops earning more than $1 million annually were
the most optimistic – nearly 86 percent expect to be more successful
(exactly the same as last year’s figure) – while shops earning
up to $124,999 were the least optimistic – only 51.5 percent expect
to be more successful (down from last year’s 64 percent). Both
statistics make sense since the biggest shops experienced more
sales increases in ’96 (making them more optimistic for the future),
while the smaller shops experienced less sales increases (making
them more pessimistic about the future). It should be noted that
optimism for future sales decreased this year in every sales range
except for shops earning more than $1 million a year.

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Why this general lack of optimism? For some
shop owners, not knowing where the market is headed in the next
few years has affected their confidence. Concerns noted by respondents
include requirements and regulations, lack of qualified personnel,
insurance-company control of repair methods and labor rates, direct
repair programs, and the fate of independent shops. Said one shop
owner about the future of the industry: "Consolidation is
on everyone’s minds. It’s going to happen, but the question is,
what impact will it have on family businesses? Nothing will remain
the same."

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Another shop owner said: "Mega shops
are buying smaller shops. I think chain body shops are a thing
of the future."

Regardless of whether consolidation happens
the way doomsayers predict, family-run shops will always have
their place – just maybe a smaller one. For now, though, family-owned
businesses are holding their own in the market – dropping only
a bit from last year’s 80.9 percent to this year’s 80.6 percent.
Family owned or not, 8.5 percent of this year’s respondents own
more than one shop.

Shrinking a bit every year is how far customers
travel to get their cars repaired – not surprising since some
urban areas sport a collision repair shop every other block. For
reasons such as this, the average customer base is down to a 29.1-mile
radius (a 14.2 percent decrease from 1995’s 33.9-mile radius,
and way down from 1994’s 38.4-mile radius).

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Because the customer base continues to shrink,
you’d think marketing and finding new sources of business would
be less of an option and more of a necessity. Not necessarily.
When we asked respondents how they market their services, only
television and billboards experienced an increase from last year
– meaning advertising in every other area decreased (word of mouth,
Yellow Pages, community sponsorships, radio and direct marketing).

When asked which marketing mediums are most
effective word of mouth earned first place – "Every satisfied
customer you send out the door sends you five more," said
one shop owner about word of mouth. "I couldn’t even pay
for that kind of advertising." Community sponsorships came
in second on the effectiveness scale, followed by television ads
and then radio ads.

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Some shop owners agree that marketing seems
to be getting kicked under the carpet – and, maybe, for the wrong
reasons: "I see that a lot of shops deep into direct repair
have essentially stopped marketing because they think they have
enough business," said one concerned shop owner. "But,
if we stop marketing to our customers, we’re doing ourselves in."

Who’s Winning? You or Inflation?

Did you know that it took $2.60 in 1996 to match the purchasing
power of $1 in 1977? With that in mind, do you know if your business
is really making money when you consider the rising rate of inflation?

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To determine whether reoccurring business expenditures and revenues
have been increasing by more or less than the cumulative rate
of inflation, multiply your expense or revenue by the figure to
the right of the year. Compare the result with your 1996 expense
or revenue to determine whether that figure has increased or decreased
relative to inflation measured by the U.S. Bureau of Labor Statistics
Consumer Price Index.

For example, if your shop earned $378,000 in 1995, multiply that
figure by 1.03 (as shown on the chart) to determine that you needed
to earn $389,340 in 1996 just to break even.

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Warning: Sit down before calculating these figures. Passing
out while standing is much more painful than losing consciousness
in a chair.


YEAR

INDEX

1977

2.60

1978

2.42

1979

2.17

1980

1.91

1981

1.73

1982

1.63

1983

1.58

1984

1.52

1985

1.46

1986

1.43

1987

1.38

1988

1.33

1989

1.27

1990

1.21

1991

1.16

1992

1.12

1993

1.09

1994

1.06

1995

1.03

1996

1.00

1997

.97*

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*This is assuming the inflation rate for 1997 will be 3 percent.

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