Automobile Parts Wholesale-Retail
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Industry Overview
The US automobile parts wholesale and retail industry includes about 35,000 companies with combined annual revenue of $135 billion. Top companies include Advance Auto Parts, AutoZone, Genuine Parts, O'Reilly Automotive, and The Pep Boys. The wholesale segment of the industry is concentrated: the 50 largest companies have more than 50 percent of the segment's sales. The retail segment is fragmented. Many large companies operate both wholesale distribution centers and retail stores.
The industry includes wholesalers and retailers of used as well as new automobile parts. Tire wholesalers and tire dealers, which are not part of the industry, are covered in separate profiles.
Competitive Landscape
Demand for aftermarket parts is driven by the age and mileage of vehicles in use and generally increases when fewer new cars are sold and older cars are kept on the road longer. The profitability of individual companies depends largely on inventory management and marketing. Large companies have economies of scale in purchasing and distribution. Small companies can compete effectively by carrying specialized parts or providing extra services such as machining or fast delivery. Average annual revenue per employee for wholesalers is about $535,000, meaning the segment is capital-intensive. Average annual revenue for retailers is about $120,000, meaning the segment is labor-intensive.
Products, Operations & Technology
The automobile parts wholesale and retail industry sells parts and other products used to maintain and repair cars and trucks. Because products are used on vehicles after their original sale, the industry is considered part of the motor vehicle aftermarket. Products are sold to two main groups of customers. Do-it-yourself (DIY) customers are consumers who work on their own cars; do-it-for-me (DIFM) customers include commercial installers such as auto repair shops, gas stations, fleet operators, and car dealer service departments. The DIY segment accounts for 50 to 75 percent of the market; the DIFM segment 25 to 50 percent.
Products include "hard parts" like brakes, mufflers, batteries, starters, alternator, and pumps; maintenance items like oil, oil filters, lubricants, additives, spark plugs, fuel injectors, lights, wipers, paints, waxes, and hoses; tools like wrenches and diagnostic equipment; and accessories like trim, wheel covers, and audio systems.
Most wholesalers and retailers operate a single location, but economies of scale in purchasing have encouraged the growth of large wholesale and retail networks. A typical distributor warehouse has about $15 million in annual sales; a typical retail store $1 to $2 million.
In general, wholesalers sell to retail operators (stores and repair shops), who in turn serve car owners. But the similarity between wholesale and retail operations has drawn many wholesalers into the retail business and vice versa. Big retailers tend to operate their own distribution networks. Some retailers sell both to consumers and local repair shops; some retailers operate their own repair departments.
The operations of both wholesalers and retailers revolve around inventory management. A typical wholesale distribution center may carry 300,000 parts, represented by stock-keeping units (SKUs). A retailer may carry 20,000 SKUs onsite in a 7,000 square foot store. Wholesalers must also operate an efficient delivery system so that orders can be filled the same day or by the next. Same-day service is essential for supplying repair shops. Wholesalers and many retailers operate their own delivery trucks.
Parts are bought from the large auto parts manufacturers, from thousands of smaller manufacturers that make parts for the auto companies under new vehicle programs, and from manufacturers that make replacement parts specifically for the aftermarket. A wholesaler typically buys from 200 to 400 vendors. Production programs for new cars typically include 5 to 10 percent of production that goes to the aftermarket. Long-term supply contracts are rare, and in most cases, several suppliers are available for any particular product. Large repair assemblies like entire doors or fenders are usually available only from a single source or used parts suppliers.
Computer technology is essential to auto parts wholesalers and retailers because they deal with large inventories of many items, bought from many suppliers, and with numerous small orders from customers, many of whom buy on account. Computerized catalogs that allow customers to find the correct parts based on auto year and make are common, and some companies allow customers to buy parts over the Internet.
