As an ecommerce expert who understands retail pricing strategies, I’m often asked how Walmart can sell tires so inexpensively. After all, their tire installation packages start at just $12 per tire – almost half the price of specialty tire shops!
If Walmart‘s tempting tire prices have made you wonder how they do it, read on as I draw on my industry knowledge to explain 5 insider secrets behind their ridiculously cheap tires.
Massive Tire Volumes Mean Rock-Bottom Wholesale Prices
As the world‘s largest retailer selling over 100 million tires per year in the US alone, Walmart has incredible buying power with manufacturers. For comparison, #2 tire retailer Discount Tire sells around 35 million tires annually.
This allows Walmart to negotiate exclusive wholesale pricing from major brands like Michelin, Goodyear and Bridgestone that is far below what smaller retailers pay. Brands are happy to offer blowout pricing to get their tires in thousands of Walmart stores and tap into Walmart‘s huge customer base.
For example, Walmart pays an average of $65 wholesale for basic car tires that smaller retailers pay $85 for – giving them a huge pricing advantage.
Huge Margins on Exclusive Budget Tire Brands
In addition to deals with name brands, Walmart works directly with manufacturers to create exclusive cheaper tire lines including Douglas, Supermax and Toto tires that other retailers can‘t access.
For instance, the popular Douglas tire is made by Goodyear but sold exclusively at Walmart for ultra-low prices. By ordering enormous volumes, Walmart gets these budget "house brands" at even lower wholesale costs than name brands.
|Walmart Wholesale Cost
|Walmart Retail Price
|Douglas All Season
While these tires retail for less, Walmart still makes around a 35% gross margin on high volume budget tire sales versus 15% on premium tires.
Cheap Tires Reel You in for Profitable Services
Here‘s an insider secret – Walmart actually takes a loss on most tire sales! The rock-bottom tire prices are designed to reel customers into Walmart auto centers in hopes they‘ll also purchase installs, alignments or other services with big profit margins.
While the average tire costs Walmart $65 wholesale and sells for $90 retail, add-on services like $15 tire installation and $10 nitrogen fills is where the real profit lies.
Once customers come in for the irresistible tire deal, they conveniently tack on another $50 per tire in profitable services, delivering a nice profit for Walmart.
Limiting Used Tire Returns Reduces Losses
Unlike most tire shops, Walmart enforces a strict no-return policy once tires are installed and driven on. This reduces losses from customers returning used tires that can no longer be resold as new.
As an ecommerce seller, I understand the importance of limiting returns to maintain slim margins. By cracking down on tire exchanges, Walmart bolsters their tiny profits from already ultra-low tire pricing.
Focus on High Volume over Premium Service
Rather than compete on premium brands and white glove service, Walmart‘s tire strategy is all about moving high volumes quickly through discounted prices and self-service online ordering.
This fast turnover of budget tires drives profits through sheer sales volume rather than premium products or experiences. You give up concierge service, but for sheer value on decent quality tires, Walmart can‘t be matched.
So while Walmart‘s tire prices seem too good to be true, their buying power, house brands, and focus on volume over service make it possible. Just be aware of the tradeoffs in performance and service compared to premium tire retailers. When you want an affordable no-frills tire replacement however, Walmart simply can‘t be beaten!