AutoZone’s Path to Success

AutoZone’s success has been impressive. I absolutely agree much of their stock appreciation has been due to their incredible focus on share buy-backs, as their P/E ratio is still behind other competitive auto retailers. However, having spent many years in the auto aftermarket, selling and marketing various consumer-led categories to AutoZone, I can offer some additional insights on how they have been so successful.

  1. Store of the community. While their 6,000+ store count gives them tremendous reach & scale, AutoZone has worked tirelessly to make their urban stores a destination point for vehicle care and maintenance. They make data-based decisions on the assortment and merchandising in those stores vs. larger, more rural locations, and ensure they can provide expertise to the higher index of Hispanic and African American end users who view AutoZone as a credible reference point for do-it-yourself (DIY) maintenance.
  2. Exclusivity. AutoZone is not shy about selling products at higher prices than you would pay, for example, at Wal*Mart. But they also focus on exclusivity as one way to provide a point-of-difference while partially insulating themselves from direct price competition. The Duralast® brand has been a huge focus for them over the last 10 years and is a go-to brand for hard parts and batteries. When companies (Rain-X® included) have brought innovation, AutoZone has been quick to partner with suppliers to give them placement, merchandising and co-marketing support to drive sales and traffic. And, through exclusive licensing programs, such as with the STP® brand, AutoZone has shrewdly tied well-known brands with lesser-involved categories (oil filters, air filters). The result? Top-line sales growth, continued traffic, trusted brands & products and reduced-reliance on direct price promotion.
  3. DIY Leverage While Building DIFM. AutoZone is about 80/20 in their mix between front-of-store (DIY) and commercial (DIFM, or Do-it-for-Me), which is behind some of their competitors like NAPA and O’Reilly Auto Parts who are much more developed in the DIFM space. But AutoZone has been aggressive at maximizing their DIY business through aggressive supplier negotiations, exclusivities, large business partnerships given their substantial store footprint (6,000+ stores) and pushing some categories toward margin focus vs. other, more innovative categories, toward top-line sales growth. This “cash cow” has enabled AutoZone to invest in building out their DIFM offering through supply chain automation, improved service offerings and creating a hub/spoke approach with varied store sizes to meet urgent delivery requests from service stations. Add on their AutoZone Rewards loyalty program, and DIFM service stations in need of a quick delivery have even more incentive to call AutoZone first. It’s a win/win for the DIFM service locations as the more easily-available parts are, the less inventory, and therefore, working capital, an owner/operator has to invest and tie-up valuable cash.

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