How AutoZone Is Holding Off Amazon… For Now

How AutoZone Is Holding Off Amazon… For Now


It is commonly thought to be a
terrible time for many brick and mortar retailers, but one segment seems
to be bucking the trend — auto parts. And one chain in particular seems
to be doing especially well — AutoZone. AutoZone’s stock skyrocketed near $1200
a share at the end of 2019. Investors see the company as a
leader in a segment of retail relatively well-protected from the
e-commerce incursions that have brought down so many other
once seemingly invincible stores. Like its closest rivals, O’Reilly, Advanced
Auto Parts and Napa Auto Parts, AutoZone sells just about everything
a person would need to fix, maintain or improve
a car or truck. And recently, investors say AutoZone has
been growing a new business that could lead to several
more years of solid growth. So AutoZone is a best in
breed retailer, specifically in the auto part retail industry. But I would say that their supply
chain is probably best in breed or one of the best in breed
supply chains across the entire retail industry. But threats and
challenges do remain. AutoZone has some pretty capable rivals
and there are massive changes taking place in transportation that
threaten the entire automotive industry. The store that
would later become AutoZone first opened in Forest City,
Arkansas, on July 4th, 1979. Then it was called Auto Shack and
was a division of a larger company called Malone and Hide. Early growth came quickly. The company opened its 100th store
in Weslaco, Texas, in 1983, just four years later. It was spun off
from Malone and Hyde in 1986. That same year it debuted the
first products of its in-house Duralast brand, under which it markets an
array of items, including starters, alternators, batteries and
hand tools. The following year, Auto Shack
changed its name to AutoZone. In 1999, the company listed on
the New York Stock Exchange. And from there it continued to grow
to 1,000 stores by 1995 and 6,000 by 2017. Two key advantages that enable AutoZone
and its peers to fend off competition from e-commerce companies
are service and parts availability. Stores like AutoZone and
O’Reilly invest money in training their staff to help customers
with often detailed and highly specific questions about cars. That is service that e-commerce giants such
as Amazon are not yet in the business of providing. These advantages have also allowed auto
parts retailers to face and fend off threats from much bigger
brick and mortar retailers who have had the ability to
undercut them on price. You don’t really know you need
windshield wiper blades until it’s raining and then at that point you
need them now so you don’t have time for next day delivery. You just want to
get them replaced immediately. And if you pull into an AutoZone,
they’ll actually go, t he employee, will go out there and do it
for you. The emphasis on in-store service has been especially
important for AutoZone. About 80 percent of its revenues come
from Do It Yourselfers — home mechanics. A lot of these customers
can be gearheads and auto enthusiasts, but many of them are
simply customers who would rather work a bit on their own cars to
save the expense of a trip to the mechanic. While a lot of these
customers might be knowledgeable about cars, they typically don’t have the
same level of expertise as a professional mechanic. These stores also enjoy
somewhat stable demand. Car parts are not
luxury or recreational items. Drivers need their
cars for transportation. So auto parts retailers can often rely
on at least some kind of customer base whether the economy
is good or bad. Some of the reasons auto parts
retailers have been especially strong in this retail environment is
partly due to timing. The economic recovery that followed the
financial crisis of 2008 has recently begun to boost the auto
parts retailers in some interesting ways, say analysts. As the economy has improved and
gas prices have come under pressure, people have felt free
to drive more. More driving eventually leads
to more parts failures. The other factor is that a historically
high number of the right kind of car for auto parts retailers
is on the road right now. Within the industry, there is something
known as the sweet spot for auto maintenance. The exact number of
years can vary, but it is generally thought to include cars that
are between eight years and 10 or 12 years old. Once cars hit about seven to
eight years of service, warranties often start to run out. But owners tend
to keep their cars on average for another two to four
years after that. So auto parts retailers tend to see
the most business when there is the highest number of cars between eight
and 12 years old on the road. The financial crisis and the
ensuing recession crippled new car sales. What that meant was there
were relatively fewer cars in that maintenance sweet spot roughly eight years
later, around 2016 or so. But that sweet spot population began
to improve in 2018 and is expected to improve for another
12 to 18 months. The highest correlation to industry growth
has been eight to 12. And why that’s improving is after
really, the recession of 2008, new vehicle sales slowed through 2010. Those began to re-accelerate in the
early 2010s and really just in 2019 and 2020 the number of
eight-year-old vehicles is beginning to increase again after three
years of declining. And so that cohort of eight to
12 is beginning to grow again and should support industry growth going
forward. But a relatively protected industry with a good,
stable customer base doesn’t really answer the $1200 question. If all auto parts retailers can
offer service, why are AutoZone shares priced so high, even far
higher than its already good competitors. What is
setting it apart? As of January 3rd, 2020 shares had
risen just over 40 percent in the last year. There are a
few reasons for the climb. Some analysts point to the fact
that AutoZone management has been buying back shares of the stock
starting in the late 1990s. Around that time, AutoZone had
about 150 million shares outstanding. In late 2019, the company had
about 25 million shares outstanding. Share buybacks alone have a tendency
to inflate share prices, say some analysts. The high share
price does not deter bulls. For one thing, AutoZone’s forward price
to earnings ratio is smaller than those of rivals. Forward P/E is a ratio commonly
used by investors that compares the price of a stock with
a company’s expected earnings. It allows investors to compare the
value of companies of different sizes and different share prices. The lower that ratio, the more earnings
an investor may expect to get for every dollar spent on a share. The main things that often drive a
higher or lower forward P/E ratio are things like the rate at which
a company is growing, its ability to deliver earnings consistently and the
quality of the assets it owns. But what what we’re seeing
today is AutoZone has the lowest ratio in the industry. And its growth opportunities
are actually accelerating. And what we’ve seen in the last
couple of years is AutoZone has made a lot of investments. Their
growth is now reaccelerating. They’re not mature. They’re
getting into commercial. And so I’m willing to pay more
for a dollar of earnings at AutoZone than I would historically, because it’s
no longer considered a mature company. It’s actually
a growth company. And a big part of what has
been fueling the enthusiasm over AutoZone has been its recent push into
commercial parts retailing often called Do It for me or DIFM. As opposed to its traditional business
in Do It Yourself or DIY. DIF M basically means professional
mechanics and body shops. These clients want to be able to
order a part needed for a customer and receive it within hours or even
minutes in many cases in about as little time as one
would expect a pizza. AutoZone has been investing heavily in
building up the supply chain needed to compete in
commercial parts supply. For example, the company has three
types of store divided by size. The smallest stores are
often called satellite stores. Then there are hubs and mega hubs
which are larger stores that carry a much larger variety
and volume of parts. A typical AutoZone store carries about
23,000 unique parts on its shelves, often called SKUs, in reference
to the unique barcodes on each type of product. A hub carries
about twice that number, while a mega hub can carry twice as many as
a hub — up to about 100,000 different products. In recent years, AutoZone
has been ramping up the number of hubs, especially mega hubs it
has to improve its chances of having a certain kind of part in
an area at any given time. That kind of selection is especially
important when you’re trying to serve a mechanic who needs
a part right away. In 2016, AutoZone had 182 hub
stores, including 11 mega hubs. By the end of 2019, the company
had 205 total hub stores, including 35 mega hubs. In 2019, AutoZone said it plans to
grow its number of mega hubs to about 70 to 90 stores
in the next few years. It is also invested in training
its staff to improve relationships with mechanics. But for a long
time, these investments bore no fruit. Until that is relatively recently,
there’s really been an acceleration in the commercial business
as they’ve made a few investments both in their supply chain
and in their people to really refocus on that part of their
business, although it’s the minority of sales it’s been a majority of
the organic growth driver and really it’s address concerns that investors have
had longer term as the business and the industry shifts secularly
towards to Do It For Me. And they’ve proven that they’re a
viable competitor t hat can take market share over there. Now, analysts
expect the company has several years of profitable growth in
its commercial business left. AutoZone only has to 15 percent of its
business in the Do It For Me category. Their peers have more of a
mix of 50 percent of their sales. And so we see tremendous
growth opportunity at AutoZone over the next honestly decade. This is helped by the
ever increasing mechanical and technological complexity of vehicles. There are some reasons to think the
stock does not have much more upside. Investors also do see a
few other potential threats to auto parts retailers. E-commerce businesses such
as Amazon remain a threat. The company that began mostly
with bookselling over the years became known as the Everything Store
and has begun moving into traditional retail businesses, both
through its acquisition of grocery retailer Whole Foods and
other experiments in brick and mortar selling. E-commerce also poses
an oblique or indirect threat. Even if Amazon decides it doesn’t want
to move into auto parts, auto parts sellers could suffer competition
from other retailers seeking refuge from e-commerce rivals
and other businesses. Auto Zone’s competitors are liable to
not give up commercial auto parts retail market share
without a fight either. AutoZone declined to be
interviewed for this story. Electric cars are known to
be mechanically simpler than internal combustion counterparts. The potential impact of
this is unknown. Despite the relative simplicity of
an electric power train, automakers may continue to add
other safety, security and comfort features that might continue making
cars ever more complex anyway. For now, investors are betting
that consumers will still need a wide array of auto parts rapidly
and will still need help actually fitting them in place.

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About the Author: Oren Garnes

100 Comments

  1. Since autozone has basically almost every part in stock it be cool to see your nearest auto zone by zip code deliver same day parts. since they’re experts on auto mechanics ,maintaining small delivery vehicles should be easy

  2. If you can wait two days or next day… Amazon parts are cheaper and better quality than the Made in Mexico Autozone Parts

  3. There is no way amazon is going to beat a auto parts store due to the fact that you can get the item instantly vs amazon maybe from 1-5 days. Even with next day delivery if I gotta get my car fixed and go to work I need the part asap.

  4. should do one on O'Reilly's. Those guys are killer. It is the staff. They get paid min. wage or a little more if they deliver/are managers/etc. Literally will help with anything at every one in Denver. Good prices too. Less than the cost of Firestone with my steep discount to do my own oil changes in a way that is meaningful. One of them helped me fish out a broker spark plug from my Jeep. Literally, the only retail employees I have seen tipped.

  5. It seems like what happens is the stores always open too many locations too quick and then everything goes down hill. I hope the expansion of the megahubs serves them well.

  6. I buy from AutoZone cause the prices are good. I get a $20 voucher after buying 5 items on 5 different days for any total above $20

  7. EBay Is still cheaper than AutoZone and EBay don't up sell you like AutoZone, they try to up sell you or lie to get sales

  8. Electric cars are not going to be a sing they are now but they're not you got to be realistic a company nuts I'm not even decided I want type of charger they're going to use a company that the rain tonight a hundred miles they claim it's 300 miles I charged but it's not it's not going to happen it's not I guess if you live close to your job at those same type of cars are not getting meeting in the darkness often as the cars that are you know 1 hour drive a day

  9. Tbh, despite me buying most of my things off amazon, I would still rather get my car parts from stores like AutoZone and Orielly. Autozone also got that free battery charging. Can't do that with Amazon.

  10. Um excuse me but that is not true! I used to go to AutoZone but I stopped because I got so frustrated basically if an item is not in the computer then the employees can't find it. So half the time I'll find it's on Amazon and then go in a store because I need it right away to show them what I'm talking about. So basically if I can wait two days it's much easier just to get it from Amazon. The only difference between AutoZone and Amazon is the fact that the warehouse is in the back of the store and is not as big and the employee interfaces with the database instead of you and delivery is instantaneous if you subtract the time it takes to drive to the store and wait Etc. I think it's a losing battle honestly. The same thing happens to me when I go to Home Depot, nobody knows anything and I have to look it up on YouTube and Amazon and walk around the store 50 times. You know, it's just easier to get it on Amazon then to deal with all of that drama. I remember once I went to a Home Depot and there wasn't a single person that knew anything about propane and so I had to just order the part that I found on YouTube on Amazon. I think a lot of these stores could compete with Amazon if they had better customer service but instead they just want to have the least amount of employees and those few employees tend to not know very much cuz there not getting paid very much. That business model may have worked 10 years ago but it's not going to work today with someone like Amazon. Unless I'm just bored and want to get out of the house and make it like an experience, I don't want to waste countless hours driving around and then walking around these stores trying to find help trying to find the parts that are usually the wrong parts when I can just order the correct thing on Amazon.

  11. A lot of car parts in Amazon are counterfeit. I unknowingly bought some conterfiet NGK spark plugs. My car was running worse, bought some legit ones from Autozone. Problem solved. There's videos on YouTube on comparing the real ones from the knock offs.

  12. Amazon could easily become Rockauto without those weird shipping charges. Cheaper buying at night? Having to bundle car parts based on warehouse location. Auto zone is nice but parts are several times the price and ebay is a mess for returns.

  13. I usually use RockAuto or eBay to buy parts for me. But nothing beats going to the AutoZone to pick up parts when you need it asap.

  14. I support all three auto parts stores in my small town. I go in when they are not real busy and get excellent service (when possible). I like to be able to inspect the parts and if there's a problem I can immediately return it for exchange or refund. You might pay a little more but convince is priceless. Support all of your town/city local businesses.

  15. Auto Zone is a convenience store for auto parts and junk. You can buy better quality and cheaper priced parts from Rock Auto with a 5 day delivery window.

  16. Bunch of AutoZone fanboys in here. Yes it's more convenient to just get the part same day. Yes you'll have to do some extra research to get there right part from a reputable dealer on Amazon. But over 20 years of working on cars I've saved thousands of dollars ordering parts online with good results. Get yourself a decent local mechanic and order your parts online, nuff said. These AutoZone scammers that charge $25 for a headlight bulb and pay their employees peanuts deserve to go out of business. Can't wait till the electric car revolution kills these stores.

  17. As they said 80% are do it Yourselfers. The Professionals know Autozone sell nothing but junk. Number 2. Rock auto is putting a dent on AZ sells. And of course 3.ppl need parts immediately. Only a matter of time before E-commerce figure out a way to get parts ASAP. And like Kmart sears and others the downside will begin.

  18. I’m a professional mechanic and I avoid autozone like a plague !! Horrible customer service cheap parts ! With good warranty but only cus they use cheap parts and need to be replaced often

  19. Its Simple when your doing handy work such as car house etc. you want it done that moment not sit around and wait for parts to arrive.
    Next Alot of times you buy a car part and its not the right kind or you realize you needed something else so you go back and exchange it fast and easy.
    Theirs a Autozone Oreilys Napa Advance Auto Parts store all within 1 mile of where i live so if something breaks im going their instead of ordering off amazon.

  20. 2:50 LOL, I stopped at AutoZone just two weeks ago while it was raining to have my wiper blades replaced. Though next time I'm going to order them from Amazon or eBay. Because it was too easy. The guy just snapped the old blades off and snapped the new blades on. It took less than one minute. I felt like an idiot.

  21. I wonder how much Auto Zone paid for this "Commercial" ??? They do have a GOOD rewards program. $20 free store credit for every (5) $20 purchases you make

  22. This whole story is a bold face lie. They are NOT training anyone. All they tell you is the customer is always right if they are stealing. & depending on the region the regional manager clearly dislikes POC (& yes I have prove if I need to use it)

  23. Napa has more parts in their stock inventory. Also more “special” parts. Whenever I need a “special” part I call Napa. I kinda like oreilly more than autozone, even though they have less parts and tools.

  24. AutoZone is still in business the same reason why Amazon is in business; lazy consumers. For Amazon, it's easy to buy with click of button, for AutoZone it takes away the time needed to research exactly what part you need by taking it to the shop. Imagine if most cars are built with similar parts easy enough for consumers to figure it out, Amazon would hands down drive AutoZone in weeks with their 25%+ up-charge.

  25. when you need to fix a car, you need the part/tool now, not in 2 days. also easy returns means physical stores are better for car related items

  26. I don’t get these auto retailers. The prices are ridiculous. They never have a part in stock. If they have to order why do I need them when can get it online cheaper ?

  27. A lot mechanics are now avoiding their electrical parts and instead are going with the company first shown in this video…. strange how that works… hahahaha…

  28. Auto zone is good but from a selection stand point Napa has the best selection when it comes to parts for domestic vehicles I personally noticed that they typically don’t have to wait for something to be ordered as much as I do with autozone and the same is true with o Reilly as well and their staff seems more knowledgeable

  29. Autozone is everywhere and in Mexico. Amazon cannot provide you the correct part and customers are not going to wait a few days to receive a part and you cannot beat the service that amazon can not provide

  30. Surprising because Autozone never seems to have parts. Amazon on the other hand have parts and so far deliver in two days.

  31. This was a good editorial. Especially in times like these where the online stores are as powerful as they are. I don't usually buy much in a store anymore but food and yes auto parts. This report was appreciated.

  32. Yeah, I don't shop at local auto parts anymore. They can't touch Amazons selection, pricing, or even their warranty on parts. When it comes to auto parts that are sold by Amazon they come with a 12 month warranty. They will refund or replace with a brand new item should it fail within 12 months of purchase, this includes wearable parts. Amazon has same day shipping in much of the US. They lose money on my items they sell including rotors as I got mine the next day 1/2 the cost of Autozone, with prime shipping included.

  33. Screw autozone, I'll never take my batteries there for refund! I'll take them to the beach and throw them in the ocean instead! It'll help recharge electric eels and give fish the vital ELECTROlytes they need. You're welcome, Canada.

  34. As an Ex-employee of an Autozone distribution center. They use the same exact formula Amazon uses to ship product. Fast paced, efficient, cruel. I saw a woman who worked for Autozone to feed her family fired after 6 years because the job was so hot and fast that she developed tendinitis in her wrists and could not keep her numbers up. Another guy was popping Ibuprofen 500mg a shot all day to keep his feet from swelling inside his boots. Great job, would recommend 10/10!

  35. I needed a radiator hose after work at 5 pm to get to work at 6 am the next day. Oriellys had the part. Sorry Amazon, I can't wait until USPS delivers 2 days later. I can wait for a phone case though. Thanks eBay. Sorry Amazon, I'm not paying you every month for the same thing eBay offers for free.

  36. If you're buying tools from AutoZone… Make sure your insurance deductible is already in the bank. You're going to need that money to sew things back together when they're cheap Chinese tools break. That's the voice of experience. That's not a conspiracy theory. And I have the scars to prove it.

  37. If you're getting automotive repair advice from the so-called professionals at the counter of AutoZone. You are literally, talking to the wrong people. The people you need to talk to are the ones who actually know how to fix cars. Not the ones who sit behind the counter and pretend to know things for ten bucks an hour. We make good money. Because we solve real problems. And when the guys behind the counter at AutoZone realize that they can make real money actually knowing things. Then they quickly become mechanics. Mathematically… It just makes more sense. Especially, since your income is your biggest wild building tool. You don't get paid to pretend to know things. Some states actually have laws against implied Authority. Which can cost these corporations tens of millions of dollars. And yes… There are teams of attorneys that will actually sue the guy behind the counter, for implied Authority. It happens all the time.

  38. 80% of their customers may be do-it-yourselfers. But 99.9% of the professional mechanics in this country, will not even put those parts on their own cars. Let alone, do something is dastardly is put those parts on, your car. You know what makes car repairs so expensive? Trying to figure out which one of the parts that you bought from AutoZone, failed, when it came off the shelf. We didn't build parts. We didn't build the cars. We just took it upon ourselves, to provide a service for you. We didn't make it expensive… They did. And they made it extremely expensive to experiment with your wallet.

  39. I love brick and mortar! It’s nice to have a place to go look at stuff. I wish people would stop buying so freakin much from amazon. Support brick and mortar!

  40. Car parts needed now. That's what Amazon can't beat. Other than that everything else Walmart has. If Walmart is by some struck of faith bought by Amazon then it's over for every business.

  41. I love auto zone. It has great customer service and offer great quality products with customer assistance that prime could never match

  42. Amazon is still a major threat to this industry. Think about it. not ALL car parts are needed immediately. Some parts can wait a day or two.

  43. AutoZone customer service is aweful 80% of the time. I stick with O'Reilly's due to their wonderful customer service 99% of the time.

  44. "invest money in training their staff to help customers" then why are AutoZone workers useless as a back of rocks? They literally don't know anything and can't tell you about anything.

  45. I guess I am not the average person. I have a 95 ranger that I bought used in 96. I am the second owner and I still have the truck today and it is 2020 now.

  46. Amazon hasn’t won my heart yet because if I want something I want it RIGHT NOW even if I half to pay extra. I have no patience help

  47. For maintenance i use amazon, for mayority of parts i use amazon or other websites, its cheaper than going to orileys. Plus mayority of parts they have to order themand it takes days to get them as well so for me amazon is a better choice

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