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Wendel H. Province, chairman and CEO of Midas Inc., is like a sprinter who just banged his toe on a hurdle. He's still in contention, but he has lost precious time. Since taking over on January 1, 1998 -- the same date that Midas was spun off from conglomerate Whitman Corp. -- Province has been racing against the clock, trying to reposition the automotive-service company before its core muffler-repair business disappears.
Years back, when the 44-year-old Midas chain was younger, cars needed new mufflers every three years or so. Now exhaust systems last three times as long. So Province began with the usual restructuring steps: He unloaded stores the company owned in the U.S. as well as its European operations. He shut one of Midas' two factories, turning instead to outsourced goods. He moved the headquarters from downtown Chicago to cheaper space in suburban Itasca, Ill.
Then in early April, Province was scheduled to launch the "new" Midas with redesigned stores and an expanded service menu that would move the company into a promising new category -- air-conditioning service. The CEO had even set aside $30 million so Midas could trumpet its remake with a big ad campaign. But the debut got delayed eight weeks because franchisees were slow to repaint stores and retrain employees. So instead of celebrating, the 52-year-old CEO was telling investors on June 14 that second-quarter and annual profits would come in below expectations. Midas' share price swiftly dropped 16%.
Province, a former chief operating officer at auto-parts retailer Pep Boys, reviewed the situation in a conversation with Business Week Correspondent Michael Arndt. Here are edited excerpts of their conversation:
Q: What went wrong?
A: We really needed to have at least 80% of our buildings redone by the planned launch date so that the public would not be disappointed. We also had to ensure that the new services we were going to offer were offered in more than 80% of the franchisees across the country -- again to satisfy the public. We have 810 franchisees. Because of the winter months, a lot of the franchisees couldn't get their buildings repainted. They put it off to the last minute. And it ended up that we weren't ready.
Q: Looking back, do you think you tried to do this too fast?
A: In one respect, you're right. But with the exhaust market declining the way that it has, we had to move quickly. Last year, the market was expected to decline at a rate of 6% to 9%. But in 1999, it declined over 20%. So whether you're ready or not, you've got to do it because you're not going to have a viable business if you wait. There used to be Woolworth's. There used to be Ben Franklin's. Times change. We could see that on the horizon if we didn't do something differently.
Q: Would this have been easier if you owned your outlets?
A: As I said, we have 810 franchisees. It's a lot more difficult to get 810 CEOs to agree on doing something than it is in a company operation, where you could say, "alright, the next four weeks we're going to do this," and it happens. I can honestly say this is the most difficult task I've ever had. And it is more difficult than I ever envisioned. Someone asked me once, "if you had known how challenging this was going to be, would you have come to Midas?" I said, "Absolutely, but I would have asked for a different compensation package."
Q: How much of franchisees' business still comes from exhaust services?
A: A little over 35%. Maybe three years ago, it was 55%. If you go back in the automotive aftermarket, from 1995 to 1999, exhaust muffler units that are replaced every year have dropped over 45%.
Q: But Midas does have strengths, doesn't it?
A: The No. 1 reason anybody shops any place is because of price. That's what people say. But if you watch what they really do, it's really because of convenience. You could always save some money if you drive far enough, but it's not worth the trip. One of the challenges today is to get good outlets. An awful lot of cities don't want service facilities because they don't consider them to be attractive. It's really hard to get permits. We have the strength because of the number of our locations. That's what we want to be focused on.
Q: But it's not easy refocusing a company.
A: It's easier to build a new one than to rebuild an old one. You've heard it before: You've got a car going down the road and you're changing the wheels as you're driving it down the road. Unfortunately, we're changing a lot more than the wheels. We're changing the engine. We're changing almost everything. The only thing that's going to be the same is the name and most of the franchisees.
Q: Are the most difficult hurdles behind you?
A: We certainly hope that franchisees will see the results in the third quarter. Midas, as a corporation, will trail the franchisees. A lot of that has to do with the extra expenses we put in to launch this. Our operating income is going to go down 7% or 8% this year.
Q: What about 2001?
A: We certainly hope things will be in a more northerly direction.
Q: Is Midas your last stop?
A: I plan for this to be my last stop. I've actually been in the automotive business since I was 11. I was going to retire at 35. I didn't make it. I was going to retire at 45. I didn't make it. I know now I'm not going to make it at 55, so my goal now is to make it at 65.
EDITED BY BETH BELTON
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