Two research firms assure AAPEX gathering that the automotive aftermarket is fundamentally healthy
America’s online sales of auto accessories are popping. Despite inflationary pressures fueled by product shortages and limited substitutes in 2021, eager buyers will have spent nearly $35 billion by year end, according to an automotive e-commerce trends outlook report conducted by the Jefferies Group.
Addressing the annual AAPEX trade show in Las Vegas on November 4, Jonathan Carey, managing director and global co-head of automotive aftermarket investment banking, and Bill Della Giustina, senior vice president, said that the Jefferies research points to receipts topping $50 billion by 2025. They asserted that the eCommerce channel has arguably become a dominant platform over most other outlets.
An evolved digital do-it-yourself shopper whose purchasing journey begins online has come of age. And it’s just not exclusive to purchasing items to accessorize the vehicle’s appearance, Carey said. “For many years, there was the association of ‘Let’s buy consumables.’ While that notion is still true today, folks are going online for replacement and complex parts for repair,” added Carey.
In Jefferies’ first-edition “E-Commerce Trends and Outlook” report presented to the Automotive Aftermarket Suppliers Association and Auto Care Association, the findings concluded that over the next five years, the internet consumer will push the compound annual growth rate to 8.6%. But whether the spending spree slows after 2025 remains an open-ended question. They also noted that the shift to the virtual store is steadily reducing the market share of the physical storefront.
Ever since the pandemic triggered a national lockdown that caused the U.S. economy to convulse beginning in March 2020, then jumpstarted by pent-up demand six months later, consumers became remarkably adept at adopting new online purchasing habits without ever stepping inside a brick-and-mortar parts location. “This trend is going to continue,” said Carey. “In 2020, consumers quickly adapted due to Covid. Consumers now want to have the feasibility and the omnichannel experience to buy and research online. And this trend is only going to continue for the aftermarket.”
The E-commerce adoption rate doubled from 6% to 12% in 2021, validating earlier assertions that the online network is the fastest-growing segment of the industry. Even more, commercial automotive service facilities have been electronically placing orders from their parts suppliers rather than phone-calling ahead.
Doubts about falling back on old habits — such as trips to the store — are far from dead, the report revealed. Nonetheless, said Carey, the major merchants will soon be launching a digital transformation playbook to appeal to the do-it-yourself and do-it-for-me customers.
Success depends on the marketing and e-commerce strategy that consistently delivers convenient solutions for individuals who now expect speedy product deliveries, Carey explained. But investors and stakeholders are pressing the public companies to clarify their mission around the online shopping journey and how the brand content connects with the end-users who usually turn to social media during the pre-purchase stage. “Folks want to know, investors want to know, ‘What is your e-com strategy?’” Carey said. “And it’s not just a pretty marketing campaign over social media.”
Referencing the importance of stocked shelves, Carey said, “it’s also about having a supply chain on the backend to do all this.”
But Carey fell short of specifying what a robust item handling and delivery framework looks like as manufacturers and distributors strain to ship whatever inventory they can amid the battered supply lines.
Traditional direct-sales stores must make room for third-party marketplaces, Carey said. Amazon, eBay Motors, and Walmart combined total roughly half the valuation of the e-commerce market. Sometimes they compete with the industry establishment, collaborate with them, or cut both ways.
Convenience-centered models are gaining popularity, the Jefferies Group executive summary found. Consumers are pivoting away from buying online and picking up at stores, which may give Amazon an edge over its rivals, said Carey. “The consumer prefers and is now used to getting the order shipped to their door.”
Calling 2020 the “Covid Bump” from the added stimulus checks, plus free time at home to work on vehicle repairs, the data from the summary findings revealed that the car enthusiasts will most likely continue researching their automotive repair solutions over the internet, Carey told the AAPEX audience. As a result, some commercial shops may lose that business.
Inquiries about systems repairs, which typically involve a group of related components, are attracting visits to specialty and general websites alike. Particularly, categories such as exhaust, braking, and filtration are gaining the largest share of viewership. “It’s not just enthusiast parts. Finding to get brakes replaced, you can research online, purchase the brakes and figure how to install it in a one-stop shop.” Carey foresees that 40% of the internet channel will consist of vehicle-application-specific categories ranging from suspension to temperature control to most anything under the hood.
Elsewhere at the same industry conference, Nathan Shipley, director of U.S. Automotive with NPD Group said, “there’s a lot to think about as we look ahead.” In NPD’s quarterly reporting that tracks accessories and appearance category sales, Shipley estimates that the aftermarket in 2022 will yield mixed signals as households rethink their discretionary budgets. Regardless of upward prices that may slow purchases, the fundamentals remain healthy, he assured the group meeting. “Our expectation for the retail front room categories is that next year lands below 2021.”
Shipley suggested more government payouts, unemployment benefits, and tax credits that propped up the economy during the pandemic seem unlikely to repeat themselves. Rising gas prices from a recent NPD survey, Shipley said, historically correlate with changing motoring behavior when people tend to drive less and “that’s something that’s going to negatively impact what happens next year.”
Noting NPD’s focus on consumer behavior, Shipley told the audience that the issue of supply chain disruptions would “take time to resolve itself,’ which may suppress actual revenue growth under the partial supply conditions. Inflation may influence shoppers to either delay maintenance or trade down to cheaper products, Shipley noted, until prices stabilize.
Yet as consumers hold onto their aging cars, partly due to low auto dealership inventories, they will likely still buy general maintenance products to keep their vehicles operational. Dealership operations are seeking warehouse distributors to acquire non-OEM parts to service their customers, which Shipley notes as one of the many silver linings benefiting the aftermarket.
Double-digit growth in discretionary and recreational purchases is possible, said Shipley. He cautioned, “do folks tap out because they purchase what they need and the behavior continues? We don’t see additional purchases. That’s all possible, too.”
