Overseas initiatives augmenting AutoZone’s global sourcing capabilities
AutoZone is accelerating its international purchasing processes by establishing an in-house product procurement center in Asia.
“We are in the early stages of expanding our direct import capabilities,” says Bill Rhodes, chairman, president and CEO. “Although we currently have an active program, we believe that it can be significantly expanded by developing more internal capabilities,” he explains.
“We have completed significant research and have now developed a new global sourcing strategy,” says Rhodes, “and that strategy – which includes us opening our first offshore sourcing office – is in the implementation phase.”
“There will be people operating it this fall,” reports Vice President and Treasurer Brian Campbell, elaborating on the company’s announcement of the initiative at a May conference call with Wall Street analysts.
A site in an Asian office park has been selected, and an executive at AutoZone’s Memphis headquarters has been assigned to oversee the overseas efforts. “He’s moving over there and will be building a staff,” says Campbell, declining to identify the specific nation hosting the facility.
Initially the location will be office-like, relying on third-party distribution centers for merchandise storage and shipping. “We don’t need warehousing space at this point,” he says, noting that competing aftermarket businesses already have dedicated foreign sourcing centers in place. “We might be later to the game than some,” according to Campbell.
An enhanced Asian hands-on presence “will allow us to be closer to the vendors and the manufacturers so that we can source with a broader net and improve our quality control, etc.,” says CFO Bill Giles, citing the long-term benefits of the plan. “It will have the opportunity to reduce pricing because we’ll be able to go direct in many circumstances,” he points out.
“The real focus is going to be on the acquisition costs, getting closer to the vendors and manufacturers, and improving the profitability of the company,” says Giles.
“I think the way to think about it is that we’ve started this journey a long time ago, and we do a fair amount of direct importing today. And so it’s not that we are starting from ground zero necessarily,” he says.
“The merchandising team has been working on this for a long time,” Giles continues, noting that direct importing is being accomplished with the assistance of third-party providers. “However, we think we can probably more than double what we’re doing today – and probably a little better than that over the next three to five years. So we’re in the third or fourth inning and working our way through.”
Unique vendors
Another initiative involves the recently completed purchase of Interamerican Motor Corp. (IMC) from Hamburg, Germany-based Wulf Gaertner Autoparts (WGA), which has operations in more than 120 nations.
Specializing in OE and do-it-for-me replacement parts for European and Asian models, “The IMC product is a whole new line of goods,” Campbell says, calling IMC “a unique set of vendors that we haven’t dealt with in the past. They’re tier one vendors; this will serve that niche that only wants to buy what was on the car originally.”
Prior to his death in 2004, WGA founder Wulf Gaertner was a successful exporter and racer in the 1950s who spent several years in Latin America building a marketplace for German performance parts. He gained a foothold in North America by establishing IMC in 1962 and growing the MEYLE lines throughout the 1990s and beyond.
“With AutoZone we found an excellent new owner for IMC,” says WGA CEO Dr. Karl J. Gaertner. “This will include an enlarged distribution network for MEYLE and MEYLE HD in the U.S. market.”
With 18 IMC locations from coast-to-coast in the U.S., “There’s a lot of business in these towns for those who want that niche,” says Campbell.
IMC’s outlets stock about 10 times the inventory per location that an average AutoZone store carries, attracting higher individual sales volumes as well. The array of some 70,000 available parts is sourced from more than 300 suppliers in 40 nations.
Integrating IMC into the product mix “offers an impressive growth opportunity for us,” according to Rhodes. “Not just because of the parts coverage, but also because of the strong management team. While it’s still early in the process,” he says, “our plans include opening more IMC branches and incorporating their parts catalog into our AutoZone Z-net parts catalog.”
More than 500 AutoZone locations now have access to IMC’s product listings. Rhodes reports “we have seen a sales lift in these stores’ commercial sales programs that encourages us that our assumptions on the sales lift to AutoZone from cross-selling were correct, if not even conservative.”
Several additional IMC-branded branches are under development, and its East Coast DC has been relocated to allow greater coverage to larger markets.
“Let me stress the IMC brand is very important to us,” says Rhodes. “We will grow the brand and its presence in the future in many more markets than it is in today. IMC has been in a growth mode recently, and has built an infrastructure to support a substantially larger footprint.”
Although IMC “currently doesn’t enjoy the operating margins that we experience,” he says, “we are very excited to have the great IMC team as part of our organization, and we are very optimistic about our future together. We continue to see synergies moving forward.”
While the IMC-AutoZone integration process is in the beginning stages, “I think what we’re learning so far is the (AutoZone) stores that are very close to IMC locations are going to outperform those that are farther away, and there’s certainly a big amount of our stores – call it half of them – that can be touched by an IMC location today,” according to Rhodes, “but there’s a bunch of them that would have to be serviced overnight. So it’s really early. We did have assumptions in our overall model and so far we’re meeting or exceeding those assumptions, but we’ve got a long way to go.”
Rhodes expresses confidence in AutoZone’s future prospects as more initiatives are implemented. “We believe we have growth opportunities on a variety of fronts in the U.S. and outside the U.S. for many years to come.”
Currently 8 percent of the company’s 5,000-plus stores are located outside of the U.S. There are 418 Mexican locations, including seven new outlets added during the third quarter.
“Our Mexico stores continued to perform well,” says Giles. “Regarding Brazil, we opened two new stores, and now have seven total locations. We are committed to our prudent pace of development. Customers are embracing our offering and sales results continue to climb. While still not profitable, we are beginning to close the gap,” he reports.
“While it is easy to envision several hundred stores in Brazil over time, currently our strategy is to open a few more stores over the next several months and then refine our offerings and prove that our concept works for our customers and is financially viable,” explains Giles, adding that “once we refine our offerings and operations and evaluate the performance” the company will render updated long-term growth plans.
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