August 30, 2018—In 2017, Amazon entered the market and investors fear that the online giant could crush the auto part retailers in the same way it crushed book stores and toy stores. But a writer with Seeking Alpha strongly believes the Amazon fears are overblown and that the incumbent players (including AutoZone) will be able to compete and win versus Amazon.
The writer claims that Amazon will be competing from a significant competitive disadvantage in this niche because it does not have a physical footprint and the market is not well suited for an e-commerce-only business model.
AutoZone, on the other hand, is the leading distributor of auto parts in the United States. As of the end of last quarter, the company operates 5,514 stores in the United States and Puerto Rico, 532 stores in Mexico, and 16 stores in Brazil.
In the DIY market, AutoZone still has the No. 1 market share and primarily competes with other brick-and-mortar shops. However, the DIFM (Do It For Me) market, which includes auto repair shops, is much larger than the DIY market and represents a huge growth opportunity for all competing auto parts retailers.
"AutoZone’s DIFM growth strategy has been to use its existing retail store footprint as the distribution point for commercial customers and support that infrastructure with large regional hubs with greater distribution capacity," the article states.
"In addition to that," the article continues, "[Amazon] has been investing resources in hiring sales reps who focus on professional mechanics to grow its customer base. By using the company’s existing footprint but augmenting it to support higher delivery volumes, [AutoZone] has been able to quickly grow its DIFM business profitably and increase overall returns on invested capital because existing assets are generating stronger returns with limited incremental capital required."
Amazon made waves in early 2017 when it announced that it would be entering the auto parts e-commerce business. However, more than a year later, Amazon’s impact on the industry has been muted, the article claims. All of the brick-and-mortar auto part retailers have continued to grow revenue and have maintained their gross profit margins.
