Imagine that you are in your garage making some weekend car repairs. The wheel cylinders are leaking ... the brake shoe adjuster nut is rusted solid ... you're about to enter ... the AutoZone. With more than 4,750 stores in the US and Puerto Rico, it's the nation's #1 auto parts chain. It also operates some 340 stores in Mexico. AutoZone stores sell hard parts (alternators, engines, batteries), maintenance items (oil, antifreeze), accessories (car stereos, floor mats), and non-automotive merchandise under brand names, as well as under private labels, including Duralast and Valucraft. AutoZone's commercial sales program distributes parts and other products to garages, dealerships, and other businesses.
Based in Tennessee, AutoZone sells auto and light truck parts, chemicals, and accessories through more than 4,700 AutoZone stores in 49 US states, the District of Columbia, and Puerto Rico. The company's fast-growing subsidiary in Mexico, AutoZone de México, operates more than 340 stores. AutoZone has two store support centers south of the border in Monterrey and Chihuahua. The company also has a single store in Brazil. The firm does not break out sales by region.
As part of its business, AutoZone operates through one reportable segment: Auto Parts Stores. Previously, the company operated two segments: Domestic Auto Parts and Mexico. Besides being a retailer and distributor of auto parts and accessories, AutoZone produces, sells, and maintains diagnostic and repair information software used in the auto repair industry through its ALLDATA business and sells directly to customers through its e-commerce site, autozone.com.
Sales and Marketing
AutoZone relies on targeted advertising and promotions to build its brand, offer advice about the overall importance of vehicle maintenance, and position its business as a great value. To drive traffic to its stores, the retailer advertises on broadcast and Internet media. It works to educate consumers about which products they need through use of in-store signage and circulars, as well as creative product placement and promotions.
Leveraging a consistent store format, each AutoZone store boasts between 85% and 90% of selling space -- up to 45% of which is dedicated to hard parts inventory. Stores are outfitted with Z-net, AutoZone's proprietary electronic catalog that gives employees advice and information for customers' vehicles, down to the year, make, model, and engine type.
In the fast lane, AutoZone wasn't even slowed by the recent recession. On the contrary, it was good for business as cash-strapped consumers deferred new car purchases in favor of keeping old clunkers on the road. Now with the economy on the mend, AutoZone's sales and earnings growth have accelerated. In fiscal 2012 revenue rose by 7% to $8.6 billion from $8.1 billion in 2011. Profits during the same reporting period increased by 10%, driven primarily by a 4% boost in domestic same store sales and $214.2 million in sales from new stores. These improvements in domestic same store sales were driven by a higher average transaction value, partially offset by a drop in the number of transactions. During the past five years, AutoZone grew its stores network 5% -- from 4,056 stores in 2007 to 5,006 stores in 2012. During the same time period, annual revenues have risen from $6.2 billion to $8.6 billion.
The company's core strategy includes expanding its stores network. It added more than 190 stores in fiscal 2012 and is focusing in 2013 on new-store development while also enhancing its existing stores and infrastructure.
To build its online presence, AutoZone has agreed to acquire AutoAnything, an online retailer of specialized automotive products.
AutoZone has grown quickly through a series of acquisitions over the past several years but now is focused on internal growth and development. Among the factors AutoZone considers when opening new stores is how many cars in an area are OKVs or "our kind of vehicles," that is, cars older than seven years and no longer under their manufacturers' warranty.
AutoZone is also growing quickly in Mexico, where cars are even older -- and in need of more repairs -- than in the US. The auto parts retailer also loans tools and sells merchandise and diagnostic and repair advice online. In addition to parts, the stores also offer diagnostic testing for starters, alternators, and batteries. (The shops do not sell tires or perform general auto repairs.)
ESL Partners, controlled by the hedge fund manager Edward Lampert, owns about 22% of the company (down from about 41% in 2009). In late 2011 ESL sold AutoZone shares to meet client redemptions related to setbacks at Sears Holdings Corp. Lampert, who began accumulating AutoZone shares in 1998, stepped down from AutoZone's board several years ago, sparking speculation that ESL might sell its stake in the company. However, Lampert has said that ESL plans to remain a significant shareholder in AutoZone for the foreseeable future.