Is Advance Auto Parts having enough success in the commercial market to reverse declining sales and drive its turnaround?
Report Available: November 3, 2016
Blueshift’s initial research shows AAP with a string of disappointing sales results that have pushed the company further behind its peers. Competition remains fierce, including from online auto parts retailers like AMZN, which are increasingly attractive to DIYers. The company has had difficulty integrating its Carquest acquisition, but AAP’s size—with more than 5,000 stores nationwide under its Carquest, Worldpac and namesake brands—gives it some inventory advantages over smaller, independent wholesalers, which the company hopes can make AAP the choice for repair shops.
- AAP’s Q2 marked the third straight quarter of declining sales. Overall sales were down 4.8% and same stores were down 4.1%. A quick turnaround is highly unlikely as numerous challenges face the company, including declining margins due to inventory buildup and system investments, difficulties in switching to a daily parts fulfillment system in the northeast, and the reduction in store consolidations. The company announced the creation of a new executive position to lead its struggling commercial division.
- Online auto parts retailers like AMZN and RockAuto are adding to AAP’s challenges. In a recent study of online auto parts pricing, AMZN’s discounts averaged 23% and RockAuto’s averaged 24% compared to the mean pricing offered by AAP, AZO, and ORLY. In addition to aggressive pricing, AMZN is offering a robust branded hard-parts inventory. The study revealed that AMZN had the highest stocking unit rate of 98.7%, compared to AAP at 95%, AZO at 55% and ORLY at 86%.
- According to Hedges & Company, the growth of online auto parts sales is expected to significantly outpace growth at traditional brick-and-mortar stores. The Automotive Aftermarket Suppliers Association (AASA) Joint Channel Forecast Model projects conventional retail do-it-yourself (DIY) sales to grow 3.5% in 2016. Ecommerce sales are projected to grow about 16% in 2016.
- Blueshift’s April 14 report found AAP struggling to grow its commercial share. AAP’s focus on the commercial market is the right strategy, but sources reported no signs of the company stealing repair center customers from its big chain competitors or independent wholesalers. AAP is having difficulty luring repair shops away from their longstanding relationships with other parts suppliers because the commercial business depends heavily on trust and customer service. Its stores often lag local competitors in key service aspects, such as knowledgeable personnel, return policies and parts warranties. AAP also continues to struggle with integrating its various divisions.
Is the turnaround working? Will AAP’s increased focus on commercial accounts reverse declining sales? Is AAP taking share from mom-and-pop auto parts suppliers? What is AAP doing to convince repair shops to switch from their existing parts supplier? What is AAP doing to compete on price with both brick and mortar and online competitors? What are the implications for AAP’s sales volumes and margins? Is AAP making any gains on ORLY and AZO? How big of an impact was the bad winter and warm summer? How is the integration of Carquest progressing? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Auto repair shops, Competitors, and Industry specialists.
Companies: Advance Auto Parts (AAP), AutoZone (AZO), Genuine Parts Co. (GPC), O’Reilly Automotive (ORLY), Pep Boys (PBY)
Research Begins: Oct. 17, 2016