Autozone Analysis

AutoZone: Background
AutoShack is known as one of the leading retailer of aftermarket automotive spare parts and accessories. The company was created in the United States in 1979. It contributes in the economy promotion by employing over 65 000 workers and it has more than 4800 distributors in North America. In 1987, AutoShack became AutoZone after changing its name. Having a great innovation power, the company achieved the implementation of the first electronic auto-parts catalogue in the retail industry. Over the last few years, AutoZone was able to maintain a stable and continuous growth, as we can observe in the Income Statement of the company (Exhibit 2).

In 1991, it was considered as public which allowed it to be listed on the New York Stock Exchange under AZO symbol. After years of efforts and investments to grow its core business, the company was able to develop a sophisticated inventory management system that helped them to maximize the product availability while keeping the in-house inventory levels as low as possible.
AutoZone performed very well and it has achieved the best operating margin in the industry due to its revolutionary electronic catalogue and its inventory management system that assisted it to develop category leading distribution capabilities. The company has also focused on return on invested capital as being an important element to measure the firm’s valuation, it focused on investing heavily in opportunities that may lead it to sustain a high level of growth, eventually to increase margins and therefore profitability.
By 1998, AutoZone has adopted a share repurchasing program and because of its intense usage of this program since its initiation, there has been a 39% reduction in shares outstanding shrinking shareholder’s equity by -1,2 billion $. As we will observe the mechanisms in details later in this report, it created an attractive return on invested capital and made the firm attractive for potential investors as well as for current shareholders.

The auto parts business
As mentioned in the case study, the auto parts business is divided into two different segments: Do-It-Yourself (DIY) and Do-It-For-Me (DIFM). In the DIY category, parts are sold directly to final customers who are vehicle owners that needed to repair their vehicles by themselves, also, to serve this category, the company required to have highly skilled and well-informed sales people in their stores. However, in what concerns DIFM category, parts are sold to automobile repair shops which means that there was no need for the expertise of a sales associate but repair shops are mainly concerned by product availability, pricing, and efficient delivery.
The auto part business is mainly subjected to the health of the economy. These kinds of businesses are doing well while the economic growth is too low and the unemployment rate is high, that will push to an increase in the vehicle’s age and then users needs to repairs operations will increase.
The big challenge in auto parts industry was to find the tradeoff between minimizing the level of inventory in stores and at the same time maximizing the number of stock keeping units.

Recent trends
US worst economic recession in 2008 resulted in keeping up a strong top line growth
Strong competition national wide but AutoZone still operating very well and seizing opportunities to expand
Sales via online channels that offered to customers more flexibility and time consuming operations
The expansion of the large U.S. auto-parts retailers into adjacent foreign markets such as Mexico, Canada, and Puerto Rico