Target’s Q3 Earnings Signal Favorable Conditions for Auto Repair Shops in 2023

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What the auto repair industry should take away for 2023, from Target, Walmart and Delta Airlines’ Q3 earnings reports.

Conceptual Minds | November 18, 2022

What Target’s Q3 Earnings Spell for the Auto Repair Industry In 2023

There’s a lot you’ll find in the latest earnings season. While Auto Repair Industry vets are paying close attention to America’s Car-Mart’s latest earnings—experiencing a negative growth rate despite 22 percent year-over-year revenue growth–it was actually the earnings announced this morning by Target that really spoke to the current economic environment.

So far, the prevailing wisdom says that consumers have pivoted away from goods and products and towards experiences—restaurants, travel, and other luxuries. This is supported by excellent earnings announced by Delta airlines for Q3 and a strong performance forecast for 2023.

But—according to Target’s Chief Growth Officer Christina Hennington—consumers have actually become more price sensitive during the last two weeks of October, continuing into the first two weeks of November.

What’s true, and what does it spell for the auto repair industry in 2023? As a long-time economic observer, a seasoned marketer in the automotive business—and veteran of the airline industry—I have a few thoughts for auto repair owners looking to stay ahead.

Why the Airline Industry Has it Wrong

I’ve spent ten years in the airline industry in various capacities, working with United and its affiliates. If I learned one thing during my time there, it’s that the airline industry is not exactly great at forecasting trends. They are slow to react and generally run behind the economic curve, due to the nature and cost structure of their businesses.

Target’s earnings, and its earning statement, both seem to confirm that consumers are moving towards essential products. Target saw a significant sales decline in October 2022, with its growth officer going as far as to describe the decline in revenue and earnings as “precipitous.”

Both Target and Walmart stated that consumers are buying fewer full-priced items and holding out for promotions instead, forecasting a slower-than-expected holiday season and a challenging 2023. Target management also stated that it will be looking to cut $3 billion in costs over the next three years, which means layoffs are likely approaching.

This means American consumers are increasingly spending their resources on necessities, trading off what they want for what they need.

Additionally, if you look at Walmart’s Q3 earnings, you’ll hear them say that their biggest share gain in the customer demographic type is customers over $100k in household earnings which means that even customers with higher household income are downgrading and starting to become more price sensitive.

What Should the Auto Industry Take Away from the 2022 Q3 Earnings Season?

Overall, the Federal Reserve is succeeding in slowing down the economy albeit not at the pace they’d like. Additionally, the historic rate hikes that have already been implemented are likely to take several months to filter through the economy, which means more pain ahead for consumers.

This is going to negatively impact the purchasing power of consumers.

As a consequence, consumers will likely continue to pivot their spending toward needs and away from wants. Consumers are likely to forgo expensive plane trips and begin traveling to regional and nearby destinations with their cars.

Since auto repair is generally considered a need, the industry is unlikely to be impacted dramatically. However, consumers are likely to opt for less expensive parts and services, which means they’re more likely to wait for promotions and bargains–or delay purchases altogether.

How Should Auto Repair Businesses Prepare for 2023?

This is a great time to start thinking about your parts and tire mix. Shop operators should ensure that the product offerings span all price points—including lower-tier price points—as consumers will likely drop service levels to save money.

Make sure you’re taking a concerted effort to keep their market competitive, as pricing is likely to change quickly (I’d recommend maintaining a list of 8-10 of your most frequently performed jobs, and check your rates against the competition on a monthly basis)
Focus on improving operational efficiency – not just lowering head counts
Highlight your business value while presenting payment plan options that can help break up their cost over several months—in many cases, at 0% rates.
Consider marketing channels that attract value-driven shoppers like Yelp
Put more marketing dollars on direct ROI marketing like email and direct mail

As margin pressure builds, less savvy operators are likely to curb marketing investments which in turn will adversely affect their sales and cause a greater decline in revenues.

This type of environment could be an opportunity for more savvy operators where they can get their message out even more effectively and work towards gaining market share.

How can Auto Repair Businesses Survive and Thrive in 2023 and beyond?

All this begs the question: how does one thrive during a recessionary environment?

Ultimately, that’s a longer conversation than we have time for today—look out for an upcoming post on recession marketing in the weeks ahead—but there’s some great evergreen guidance in the topic that I usually point to in times like these.

According to the Harvard Business Review, the companies that tend to come out best are what’s referred to as progressive companies. These are companies that shy away from some of the more self-destructive recessionary behaviors—like sudden and massive cuts to functions that ultimately reduce a business’s capacity to bring in more revenue.

“These companies’ defensive moves are selective. They cut costs mainly by improving operational efficiency rather than by slashing the number of employees relative to peers. However, their offensive moves are comprehensive. They develop new business opportunities by making significantly greater investments than their rivals do in R&D and marketing, and they invest in assets such as plants and machinery. Their post-recession growth in sales and earnings is the best among the groups in our study.”

What Kind of Service Will Ailing Customers Need?

It’s safe to say life for consumers is about to get harder. As they adjust their expectations and budgets to favor necessities over luxuries and local trips over national and international travel, they’ll be looking for service providers that have their best interest at heart.