Part King Case Analysis

1. Situation

Background: Hawthorne operated several different retail divisions in petroleum, clothing, financial services and general merchandise. One of the products Hawthorne’s general merchandise stores carried was automotive products including replacement parts. In the mid-1990s, Hawthorne realized that its general merchandise stores were not addressing the needs of two key customer segments in the automotive parts industry: serious “do-it-yourself” consumers and commercial consumers. Hawthorne decided to replicate stand-alone auto stores (such as, AutoZone, Pep Boys) business model in Canada under the Part King name.

Part King, Inc opened its first store in Guelph, Ontario in 1996. By 2005, the total number of franchise stores has surpassed 50, with an average of 10 to 12 new stores opening each year. PK targeted both hobbyists and commercial customers, each of which had very specific and very different needs. Hobbyists were do-it-yourself auto enthusiasts as mentioned earlier; commercial customers were local garages and dealerships that performed repair services. Even though, most PK franchises were considered by Hawthorne to be successful. By the third year of operations, most were earning sales of at least $2 million and were generating profits. But PK’s total sales had not yet exceeded 10 percent of Hawthorne’s general merchandise sales.

While Hawthorne believed that the PK business has the potential to be tremendously profitable, Hawthorne had always wanted to pursue a corporate store model for PK. In early 2005, Hawthorne was able to renegotiate the contract with general merchandise stores gaining the flexibility to pursue a corporate-owned store model. In August 2005, Kevin Bachand, as the newly appointed Ontario operations manager, was expected to provide his expertise in the planning, launch and ongoing operations for three corporately owned Part King stores.

2. Problem: Bachand was particularly concerned about how best to motivate the...