Analysis: Amazon disrupts AutoZone’s meteoric rise – USA TODAY
Amazon will now deliver food from chain restaurants like Applebee’s, Sweetgreen, Shake Shack, Chili’s, and Red Robin. The service, called Amazon Restaurants is available to Amazon Prime customers.
MEMPHIS Ã¢Â€Â” Ah, Amazon. It started with books, added apparel and now has disrupted supermarkets and even places that sell motor oil and windshield wiper blades.
Home delivery ofÃ‚Â goods ordered from its website has made Amazon a high-tech success story. Meanwhile, regular merchantsÃ‚Â who have invested in stores and distribution depotsÃ‚Â have withered under Amazon bargain prices.
The latest sector facing disruption Ã¢Â€Â“ auto parts stores.
Since Amazon pushed this year into the $48 billion-in-annual-sales sector,Ã‚Â stock prices of the Big FourÃ‚Â auto-parts merchants have skidded.
Falling share price
Before its meteoric rise stalled in December,Ã‚Â Memphis-based AutoZone Inc.’s stock more than doubled in value between 2012 and 2016, reaching nearly $790Ã‚Â per share. America’sÃ‚Â aging car fleet powered the surge.
But, since the start of the year,Ã‚Â O’Reilly Automotive Inc. of Springfield, Mo., stock is down about 23%. Advance Auto Parts Inc. of Roanoke, Va., stock has given up 34% of its value.
Genuine Parts Co. of Atlanta has retreated only about 7%, holding on in part because of market share in crowded East CoastÃ‚Â states and the loyalty of professional mechanics to its NAPA brand.
Executives at the Big Four auto parts stores point to a mild winter and summer as the reason many of their 17,000 stores have underperformed. But stock analystsÃ‚Â point to a different reason Ã¢Â€Â” that 342,000-employee e-commerce giant based in Seattle.
$5 billion slice
Amazon created a sensation last winter with disclosure of plans toÃ‚Â sell products made by auto parts manufacturers includingÃ‚Â Federal-Mogul Corp., a Detroit mainstay whose brands include Anco wiper blades and Champion headlights.
Some analysts predicted Amazon could carve out a $5 billion (10.4%) slice of the retail partsÃ‚Â business by 2018.
Threatened by the prospect of Amazon capturing 10% of the business,Ã‚Â the Big Four are fighting back,Ã‚Â focusingÃ‚Â on services like faster delivery. For example, AutoZone, which employs 84,000 workers, has doubled down on mega hubs. These big depots can stock more strong-selling products than a regular warehouseÃ‚Â and move them quickly to online customers picking up the goods at one of the 5,814Ã‚Â stores operated by AutoZone.
The department store chain will house Amazon shops inside 10 of its stores. As Fred Katayama reports, the move comes as Kohl’s tries to snap its streak of falling sales.
Video provided by Reuters
Caroline Jolly likes the strategy. A stock analyst who studies auto parts retailers for clients of the brokerage firm Gabelli & Co. of Rye, N.Y., Jolly recommendsÃ‚Â investors buy AutoZone stock, figuring the share price is bound to rise.
Ã¢Â€ÂœThese guys have the opportunity to invest and make sure they are competitive on the economic side,Ã¢Â€Â Jolly said.
Amazon’s prowess is built around a 2-day delivery promise centered on 258 distribution facilities throughout the United States.Ã‚Â These centers are able to move everything from silk scarves to diesel generators from the manufacturer to the home of customers ordering online. However,Ã‚Â auto parts flowing through its systemÃ‚Â take as long as a week to reach customers.
With the mega hubs pioneered by O’Reilly, she said, the brick-and-mortar merchants are much better at getting parts into the hand of customers when theyÃ‚Â need them Ã¢Â€Â” 2 hours for a professional mechanic and 30 minutes for a customer in one of their stores.
Merchants have another advantage. The number of parts used in Ã‚Â modern vehicles has proliferated. O’Reilly, for example, now stocks more than 23,000 parts in a single distribution center, Jolly said, and can relatively easily find the right part for many car and truck models.
Jolly also noted that “the Big Four have accumulated more than 20 years of parts coverage data and car population demographics, including age and breakdown rates, to optimize the location and number of parts for any given five-mile radius of distribution.”Ã‚Â
Still, traders favor AmazonÃ¢Â€Â™s chances.
Amazon shares have climbed about 15% in the last year as investors buy into the promise of the company someday compiling big profits. Ã‚Â Amazon in the latest quarter pocketed 0.5 cents on every dollar in sales. AutoZone earned about 13 cents on every dollar. OÃ¢Â€Â™Reilly held on to about 12Ã‚Â cents. Rather than provide stockholders with big profits, Amazon is pouring money into expansion.
No one predicts a spate of store closings soon on the heels of AmazonÃ¢Â€Â™s push into auto parts retailing. But if closings ever occur, they would be noticeable. Auto parts stores are almost as abundant as dollar stores in U.S. cities.
In metropolitan Knoxville, for example, home to about 880,000 residents, Google Maps shows more than 30Ã‚Â Advance, AutoZone, Carquest (a separate Advance brand), NAPA and OÃ¢Â€Â™Reilly stores open for business.
Seattle-based Amazon is looking for another city to build its second headquarters and has plans to invest $5 billion and create 50,000 jobs. Jane Lee reports.
Video provided by Reuters
While AmazonÃ¢Â€Â™s expansion continues, auto parts retailers are scrapping for market share. AutoZone, for example,Ã‚Â will open two mega hubs this quarter at Ocala, Fla., and Pasco, Wash., and 10 more in 2018. It has 16 in place nationwide now. Each 30,000-square-foot hub cost about $60 million.
AutoZone chairman William Rhodes recently told stock analysts the mega-hub strategy and superior customer service can aid the retailer.
Ã¢Â€ÂœWhile some portions of our industry have migrated, in small part, to online,Ã¢Â€Â Rhodes said, Ã¢Â€Âœwe believe that the trustworthy advice elements combined with the sense of immediacy insulate us much more than most sectors of retail and, to-date, that certainly has proven to be the case.Ã¢Â€Â
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