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Is the Automotive Aftermarket Immune to E-Commerce?

Auto parts suppliers are responding to the growth in e-commerce with a multi-pronged strategy, from the expansion of retail locations to the addition of regional and “mega” distribution hubs.

2018 Auto/Aero Site Guide
There has undoubtedly been a dramatic shift in the retail industry over the past several years. Driven by the growth of e-commerce, it seems no industry has been untouched by the impact of online sales, same-day deliveries, and evolving supply chains. For some legacy retailers, this shift has been a challenge, and in 2018 alone, we’ve seen some major downsizing, layoffs, and closures afflict retailers across the industry.

Some longstanding companies, however, are experiencing an entirely different reality. AutoZone, O’Reilly Auto Parts, and Advance Auto Parts are automotive aftermarket suppliers that were founded decades ago and represent a market that is experiencing a counter-narrative. In 2018, these companies have announced plans to expand their retail footprints while embracing e-commerce, despite the attempts of competitors like Amazon and Walmart to encroach on this $130 billion market.

Why The Retail Expansion?
Institutional auto parts retailers are becoming more strategic about what differentiates them from their aspiring competitors. Expanding retail locations is just one strategy to remain in the lead, in addition to prioritizing better service, housing comprehensive inventory, maintaining strategic supply chains, and securing quick and reliable deliveries.

Over the last several years, AutoZone has continued to expand its footprint with more than 5,500 stores across the U.S., the District of Columbia, and Puerto Rico. By the end of 2018 alone, it will open 26 new stores in the U.S., and over the next three years, it plans to open additional regional hubs and up to 40 additional mega hubs.

It was in 2002 when AutoZone first began experimenting with a distribution hub strategy. Regional hubs can store up to 50,000 different items at a given time, and for AutoZone, this has proven to be an effective way to adequately stock its retail stores across the country. Mega hubs have followed, which are even larger distribution centers designed to keep regional hubs fully stocked with deliveries of inventory arriving multiple times a day. Ultimately, regional hubs and mega hubs have allowed AutoZone to complement its retail stores and build up an immense stock of inventory that ensures surrounding stores and commercial mechanics can quickly access a diverse and comprehensive range of auto parts.

O’Reilly Auto Parts has pursued a similar model. Last year, the company opened 190 new retail stores, and by the end of 2018, it is projecting the addition of 200 new stores. Overall, the company has 27 regional distribution centers that supply 331 hubs. Those hubs ensure consumers can quickly and easily access thousands of specialty auto parts at its growing number of retail stores, which is nearing 5,000 locations. Advance Auto Parts also maintains a network of 54 regional distribution centers that support a similar store base of over 5,000 retail locations, and in 2018, it is also looking to expand.

More store fronts have translated into more distribution centers, and this is where institutional leaders like AutoZone, O’Reilly Auto Parts, and Advance Auto Parts have a strong foothold over their competitors. The leaders have developed extensive networks complete with distribution facilities and advanced supply chains, and their continued expansion is a clear effort to maintain a competitive advantage as new players enter the market.

The DIY Customer
E-commerce has also driven the buy online, pick up in store (BOPIS) trend that is allowing auto parts retailers to capitalize on online sales at their physical locations. In late 2017, AutoZone’s BOPIS sales actually outperformed ship-to-home sales. Customers can select from thousands of items online, and thanks to strategically and well-organized supply chains, AutoZone is able to ensure a seamless in-store pick-up experience that satisfies customer demand.

These customers are typically do-it-yourself (DIY) consumers who are making repairs to their own vehicles. DIY sales constitute approximately 80 percent of AutoZone’s business, 60 percent of O’Reilly Auto Parts’ business, and 40 percent of Advance Auto Parts’ business. By investing in regional and mega hubs, auto parts retailers can stock more inventory than a regular warehouse and quickly supply stores with customers’ in-store pick-up deliveries across thousands of locations.

What’s driving the demand for auto parts? Our aging American auto fleet — the average car on the road is 11.6 years old. The sheer demand for auto parts is also driving the decisions of auto parts suppliers. U.S. automotive aftermarket sales within the DIY segment have increased an estimated $15 billion over the last 10 years. What’s driving that growth? Our aging American auto fleet. In fact, in 2017, the average car on the road was 11.6 years old.

Further, Advance Auto Parts is embracing the ride-sharing market in an attempt to bolster its DIY customer base. In 2018, the company announced a new partnership with Uber to support the Uber Visa Debit Card program. The goal of the partnership is to incentivize the fast-growing population of ride-share drivers to complete their DIY retail needs at a discount and exclusively with Advance Auto Parts.

Looking To The Future
Traditional auto parts retailers know, however, that DIY consumers may be the first share of the market attracted away by competitors like Amazon and Walmart, which means ensuring a steady business with commercial retailers and mechanics is an additional strategy to remain competitive.

While the rising number of aging cars on the road may stoke immediate demand from DIY, as cars undoubtedly become more complex, DIY repairs will become equally as difficult. Today’s cars are equipped with sensors to detect lane changes, 360-degree cameras, and technology that requires professional support. Consumers with these types of vehicles are likely to become reliant on auto repair shops and mechanics in a trend that is known as do-it-for-me (DIFM).

As auto parts retailers look to prioritize commercial business sales, companies will need to evaluate future demand with a forward-looking strategy. For the top automotive aftermarket retailers, profits from DIY consumers still make up a majority of business profits today, but directing attention to commercial repair shops and mechanics may be another preemptive strategy in order to remain competitive.

Advance Auto Parts is creatively capitalizing on e-commerce to target this segment of the market. To enhance its B2B (business-to-business) revenue, this year, the company has worked to roll out Advance Pro, which it describes as an e-commerce engine for professional customers. Since its launch, the platform has been used by nearly 20,000 professional Advance customers to order auto parts inventory.

Investing in online B2B sales is a long-term priority for Advance moving forward, and the retailer is looking at online efficiencies to improve user experience. To do this, Advance recently implemented “cross-banner visibility,” an initiative to streamline the inventory search online for both professional customers and store associates alike. The goal of the strategy is to save time and resources on both sides of a transaction.

The Takeaway
In the wake of technological advances, many retailers are experiencing improved supply chains. However, for traditional brick and mortar retailers without a strong online strategy, new Internet channels and buying habits have come at a cost. Ultimately, the auto parts sector has managed to remain more immune to these undesirable effects. As competitors continue to target this lucrative market, the automotive aftermarket industry should continue to leverage physical stores, digital B2C (business-to-consumer) and B2B, and the evolving supply chains that enable these marketplaces. By doing so, the industry may prove to be more resilient in the e-commerce revolution than others.
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