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Improved stores, service gas up AutoZone


As the industry leader in auto parts retail with a market share of around 13%, AutoZone continues to lead the way through a combination of superior service and cutting-edge technology that keeps its stores in stock and “puts customers first.”

It’s been a challenging year for AutoZone, with high gas prices impacting spending for its core customers, and the company focused most of its efforts on improving the look of its stores and the services it provides. “We feel we’re well positioned based on the progress we’ve made with our sales initiatives, including improving merchandising assortment and implementation of Z-net, our updated electronic parts catalog,” said AutoZone ceo Bill Rhodes in an early summer earnings call.

During the past year, AutoZone outfitted its stores with new signs, expanded lines of hardware and better tools for customer service, something it monitors relentlessly with weekly customer surveys. With No. 2 retailer Advance Auto Parts and three other chains with a national presence nipping at its heels, AutoZone is in a tough business made tougher by the fact that it is not easy to build customer loyalty.

“We realize the average customer shops with us only three or four times a year,” said Rhodes, “and that’s why it’s important to us that customers are impressed with our service when they visit our stores and see the changes we’ve made.”

The biggest change this year was the rollout of Z-net, an online, auto parts catalog system. Z-net allows workers to look up the parts a customer needs and provides detailed images of the parts and tips on how to properly install them. Rhodes described Z-net as the most “content-rich system” in stores today and said that AutoZone is looking into ways to give customers access to Z-net. “At some point, customers may be able to use the system themselves,” said Rhodes.

In terms of marketing, AutoZone has been running national TV commercials for years with its ubiquitous ‘Get in the Zone: Auto Zone’ slogan and has become a standard bearer on the NASCAR circuit. AutoZone sponsors its own Team 21 car on the racing circuit with top drivers such as Kevin Harvick and Scott Wimmer and provides a running stream of news about Team 21 on its Web site.

AutoZone also launched a new loyalty card in stores late last year that gives customers points and incentives with every purchase and helps AutoZone monitor its top customers. “We’re still building accounts and beginning to learn a lot about our heaviest shoppers,” said Bill Giles, evp and cfo.

AUTOZONE INC.Source: Company reportsFor fiscal year ended Aug. 26, 2006
HEADQUARTERSMemphis, Tennessee
2006 SALES$5.95 billion
2006 EARNINGS$1.01 billion

And AutoZone expanded its selection of hardware in stores this spring to give commercial customers a greater assortment of products such as brakes and batteries to choose from, including those from its own Duralast and Valucraft brands. More than half its stores—2,157—serve commercial customers.

All these efforts are helping AutoZone stay at the top of the heap among auto parts retailers. In its most recent quarter, AutoZone reported a 5% increase in net earnings of $151.6 million and $1.5 billion in sales, and in June it opened its 4,000th store in Houston. Expanding more since then, the company presently has more than 3,900 stores in the United States and 110 stores in Mexico. AutoZone continues to average 30 to 35 new store openings per quarter as it stays ahead of Advance Auto, which has more than 3,200 stores. AutoZone also has 10 new stores planned for Mexico, its only international territory, to raise its store count there to 120.

But there is concern about anemic same-store sales, which increased only 0.2% in AutoZone’s most recent quarter. AutoZone and competitors such as Pep Boys and O’Reilly Automotive reported flat or low single-digit increases in sales this summer due mainly to the high price of gas, which has cut spending among do-it-yourself auto repair enthusiasts and caused many to put off needed repairs.

But Rhodes said the key indicators for the business are still strong. While the average number of miles-driven per car decreased slightly in the United States in 2006, the number of cars on the road that are seven years old or older increased to a record high, giving AutoZone a huge pool of cars that will soon need replacement parts.

Deutsche Bank Securities analyst Mike Baker touched on these challenges in a recent earnings report. “AutoZone has implemented a number of initiatives to drive sales, including enhanced parts coverage, rollout of a new, in-store parts lookup system and improvements to its loyalty program,” wrote Baker. “However, these programs have yet to drive meaningful comp growth, indicating still sluggish industry trends and difficulty comping on a large basis.”

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