Investors who snapped up Trak Auto Corp.'s initial offering last week confirmed what consumers had been saying for the past two years. Trak Auto is a hot property.
So hot, in fact, that its potential for becoming a major national chain prompted Dart Drug Corp., its founder, to make it a separate publicly traded company.
Dart Drug Corp.'s announcement in February that it planned to spin off Trak Auto in a public stock offering stirred such heavy interest among investors that shares in the parent company soared to record levels.
That interest carried over last week when Trak sold its first stock to the public. Issued at $22 each, the company's shares rolled to an impressive 33 1/2 bid, 33 1/2 asked by the end of the day in over-the-counting trading.
From an inauspicious beginning in 1979, Trak Auto, purportedly the nation's first supermarket of auto supplies and accessories, has developed into a major Washington-based company.
Sales and earnings, which virtually doubled in 1982, qualify it as the newest publicly traded corporation among The Post's Top 100 firms this year.
Recalling the company's brief history, Dart Drug Corp. and Trak Auto Chairman Herbert H. Haft describes it as a "classic Harvard Business School case study." It is, he added, "one of the few businesses conceived from pure research."
In a rare interview last week, Haft recounted Trak Auto's development from an idea to one of the most successful ventures in the history of retailing. In just four years, Trak Auto's sales rose from $1.6 million to nearly $46 million. From a loss of $203,000 in its first year of operation, Trak Auto has compiled an earnings record that topped $4 million last year.
One analyst, assessing Trak Auto's earnings performance before the spinoff from Dart, described it as "the horse" among the corporation's subsidiaries. Indeed, the horsepower generated by Trak Auto's sales last year accounted for nearly half of Dart Drug Corp.'s net income.
The combined performances of Trak Auto and Crown Books, Dart's other specialty division, were so strong over the past two years, in fact, that several analysts are predicting Dart will spin off the drug chain.
Haft flatly denies that Dart will spin off its drugstore subsidiary, a major regional chain operating in what has been described as the most competitive market for that retail segment. Although Dart officials believe Trak Auto could eventually become larger than Dart Drug, "we have no intention of spinning it off," Haft said of the chain drug subsidiary.
Dart plans just the opposite, in fact. In addition to a recently inaugurated remodeling program, the company plans an expansion built around two new prototypes. One, a "very high-fashion" boutique store of about 5,000 square feet, has been designed for downtown office buildings and what Haft calls "certain limited niches where you can put a suburban store."
With Peoples Drug Stores Inc. increasing its dominance in the Washington market and Giant Food Inc. closing fast as the area's fourth largest drug chain, Dart's market share had begun to slip. But "we are going for all three parts of the market," Haft promised, referring to his company's expansion strategy. "We are dedicated to Dart Drug. That's our start and it's a profitable business."
It's difficult to tell just how profitable the drug chain is because the parent corporation doesn't report earnings results separately for its divisions. Dart was required to make available Trak Auto's earnings as part of the public offering for the new corporation.
Trak's phenomenal growth was no surprise to Dart Drug's senior executives. They had spotted the potential at least five years ago during a buying trip thousands of miles from Washington.
Herbert Haft, Dart Drug Corp. President Robert Haft and Ben Kovalsky, senior vice president of the parent corporation and now president of Trak Auto, were in the Orient when Robert Haft observed that sales of auto accessories in the company's drug stores were increasing at a phenomenal clip.
"We decided there was a tremendous upsurge in auto parts sales and decided to do some research," Herbert Haft recalled in his office at Dart Drug Corp.'s sprawling headquarters and distribution complex in Landover.
With Herbert Haft as coordinator, Dart embarked on an ambitious project in which Robert Haft directed research and Kovalsky planned merchandising strategies. Enlisting the aid of more than 40 MBA candidates at George Washington University to do the extensive research, Dart compiled a 1,000-page study that formed the basis for the Trak Auto chain.
In hundreds of interviews conducted by the research team with manufacturers, wholesalers, retailers and consumers, Dart found that "there was tremendous dissatisfaction with car maintenance, the inadequacy of the work and the cost," said Herbert Haft. "We found from this research across the nation that people were unhappy with their mechanics and that there was a do-it-yourself or snap-on or module trend and people were ready for it."
Research showed further that consumers wanted brand-name quality and a wide selection of merchandise in a nonfood supermarket very much like Toys R Us stores. So Dart developed an impressive list of brand names. And the company concluded that it needed 6,000 square feet of retail space instead of the 1,000 to 1,500 square feet found at most retail auto parts stores.
Typically, a Trak Auto store stocks 16,000 parts and accessories. Consumers are likely to have a choice of 19 brands of motor oil, for example, or six kinds of oil filters or five makes of spark plugs.
After laying out plans for the prototype store, said Haft, "We said, 'wouldn't it be wonderful if we sold at 35 percent to 51 percent off?' The public would be buying darn close to or just about what some of these smaller stores are paying" wholesalers.
Although consumer responses and attitudes were vital to Dart's research, raw statistics gleaned from industry and census data confirmed that there was a market for a Trak Auto.
The drugstore market, for example, is a $35 billion business. The automotive after-market, however, is estimated to be around $90 billion.
But big as it is, that market is fragmented. It's divided among department stores, discount stores, new-car dealers and service stations, to name a few.
In recent years, however, significant changes in the world and national economies have forced many of the traditional outlets out of the automotive after-market. Thousands of service stations have closed in recent years and the trend among those that remain is toward self-service and reduced parts and accessories sales.
At the same time, the number of new-car dealerships has declined dramatically as a result of problems encountered by the domestic automobile industry. Add to that the fact that major retailers such as J. C. Penney Co. are dropping their automotive departments and it is obvious that a significantly large automotive parts and accessories market is up for grabs.
And the market is expanding all the time with automobile owners holding on to their vehicles longer and relying less on mechanics for repairs and replacements.
Armed with a massive body of information from careful research, Dart proceeded to "set up a state-of-the-art distribution system before we opened our first store," Haft said. "We decided to become our own distributor and be more efficient."
To capitalize on the do-it-yourself trend among car owners, Trak Auto regularly promotes its in-store classes as part of a heavy advertising program. With today's modular parts systems and snap-on accessories, more people are finding it easier and far less expensive to do their own auto repairs.
In only four years, Trak Auto is in the forefront of discount auto parts supermarkets, with 41 stores in metropolitan Washington and seven in Richmond. Trak Auto recently opened 10 of the first 50 outlets planned for the Los Angeles area through a joint venture with Thrifty Corp., a major California drug chain which bought half interest in the company a year ago. In all, 150 Trak Auto stores are planned for southern California. In addition to opening stores in San Diego and Phoenix as part of the deal with Thrifty, Trak Auto will soon penetrate the South Florida market.
For the time being, Trak Auto has identified 65 trading areas in metropolitan Washington as targets in its expansion plan for this area. And if all systems function as well as Haft and Kovalsky have planned them, Trak Auto will soon be a national chain in the truest sense. At least 30 major metropolitan areas have been targeted for penetration.
"What started out as a little child" four years ago, beamed Haft, "is now a very lusty young man."