123 South Front Street
We rely on innovation as our fuel for growth and let others run on imitation. We make sure the objects in our rear-view mirror aren't closer than they appear because we keep moving faster. What's more, because we're constantly fine-tuning the business, we're squeezing more horsepower out of the same fuel-efficient engine. We're experts on getting more for less. We have to be, because when the rubber hits the road, a customer with grease up to his elbows will tell you he doesn't care about anything but the right part at the right price, right now. Yes, there are other places he could go for that. But he comes to AutoZone because we give him all of that plus a level of service that helps make that tough job a little easier. So when we say we're set on customer service, we're not just yanking your timing chain. It's the foundation of our culture, and it's ours alone. It's what drives us.
The leading U.S. specialty retailer of automobile parts in the late 1990s, Memphis, Tennessee-based AutoZone, Inc., sells auto parts, maintenance items, and automotive accessories through more than 2,700 stores in 39 U.S. states and in Mexico. The retail chain offers both private-label products, including Duralast and Deutsch, and brand names. Geared primarily toward the do-it-yourself market, AutoZone also serves professional auto repair shops. AutoZone stores do not sell tires or provide repair service, but they do offer diagnostic testing for batteries, starters, and alternators. AutoZone sells heavy-duty truck parts through its subsidiary TruckPro L.P. and offers automotive diagnostic and repair software through ALLDATA Corp.
Rapid Development during the Early Years: Late 1970s-Early 1980s
Joseph R. Hyde III began working in his family's business, Malone & Hyde, Inc., immediately after graduating from college in 1968 at the age of 22. The company, a wholesale grocery business, had been founded by his grandfather in 1907. The younger Hyde expanded the family business considerably. He began with drug stores, founding Super D Drugs at age 26, and then moved on to sporting goods stores, supermarkets, and, finally, automobile parts stores.
Hyde's entry into the retail auto parts market came on July 4, 1979, when he opened his first store, named Auto Shack, in Forrest City, Arkansas. The company had 25 people on its payroll at the time. To support further expansion, Hyde opened a 12,000-square-foot warehouse in Memphis, and by the end of the first year seven more stores in Arkansas and Tennessee had made their debut.
The idea behind Auto Shack was straightforward. The company aimed to provide a wide selection of auto parts at a low price to do-it-yourselfers--what it referred to as the DIY market. In addition to these customers, the company identified a pool of potential buyers as 'shade tree mechanics,' that is, those who worked on other people's cars in their spare time as a source of extra income, and 'buy-it-yourselfers,' those who lacked the expertise to do the work themselves but who bought parts and then hired others to install them.
To serve these customers, Auto Shack sought to establish quality and expert advice from employees as a hallmark of its business plan. In addition, the company tried to locate its stores in neighborhoods where people who worked on their cars lived and to keep its stores open at hours when its customers were not otherwise occupied at work. This initially meant that many Auto Shack stores stayed open all night. Auto Shack stores were clean and bright, and the company emphasized friendly, helpful service. Company chairman Hyde himself, garbed in a company uniform with a name tag, spent a quarter of his time visiting Auto Shack stores to keep an eye on operations and to encourage employees to do their best.
In its second year of operation Auto Shack added 23 more stores, branching out into five nearby states: Alabama, Kentucky, Missouri, Mississippi, and Texas. By this time the company had started to hit its stride, and on average it would go on to open a new store every week for its first ten years in business. Before opening a new outlet, Auto Shack's research analysts spent time looking at appropriate sites. The company's intended customer base was lower- or middle-income males between the ages of 18 and 49. The company's ideal customer was a male who, both as a hobby and an economic necessity, spent a lot of time working on his car to keep it running much longer than ordinarily expected. Auto Shack estimated that the ever-rising cost of a new car, both in absolute dollars and as a percentage of the average family's income, was a strong incentive for a large portion of the population to enter the market for replacement auto parts.
In addition, Auto Shack took note of the business practices of other successful retailing establishments in the South, including Wal-Mart Stores, Inc., on whose corporate board Hyde sat for seven years. By selling a high volume of goods in a large number of stores serviced by central distribution centers, Auto Shack was able to keep its costs and prices low, providing the chain with a tremendous competitive advantage over smaller operations. In addition, the bright, modern, clean store interiors were a welcome contrast to the dark, grimy aura projected by some other parts outlets and by auto junkyards.
By 1981 Auto Shack had opened 45 stores, and by the following year the number was up to 74, all within its core market area. By 1982 Auto Shack's Memphis warehouse had expanded to 96,000 square feet, growth made necessary by the increasing number of Auto Shack outlets. In 1983 Auto Shack again expanded in numbers of stores, growing to 139 outlets, and in geographical scope, adding outlets in Georgia, Arizona, Illinois, and Louisiana. By the following year the number of Auto Shacks had reached 200, and openings in Florida and South Carolina pushed the company's tally of states to 13. In addition, two more distribution centers were opened to serve the increasingly far-flung Auto Shack operations. Facilities in San Antonio, Texas, and Phoenix, Arizona, raised the company's total warehouse space to 320,000 square feet.
In 1984 the leaders of Auto Shack's corporate parent, Malone & Hyde, decided that the company's stock was undervalued. To get the most value out of their properties, Hyde and his fellow executives decided to take the properties private in a leveraged buyout. To do this, they enlisted the help of the investment banking firm Kohlberg Kravis Roberts & Company (KKR), which engineered the withdrawal of Malone & Hyde from the stock market. KKR was compensated with large blocks of Auto Shack stock, in effect becoming the owner of the company.
Aggressive Growth through the Mid-1980s
Despite its new corporate status, Auto Shack continued to grow at a dramatic rate. In 1985 the company opened an additional 68 stores and moved into North Carolina. Along with its standard format, Auto Shack also inaugurated an Express Parts Service that rushed auto parts to customers who called in over a toll-free service line. In this way the company was able to offer services to parts of the country that were not yet served by an Auto Shack store.
Auto Shack took another step toward upgrading customer service in 1986 when it instituted a lifetime warranty on 42,000 separate parts it sold. The company's decision on which products to offer was closely tied to its research into what customers wanted. For some types of goods, Auto Shack stocked a wide variety of nationally known brands. Motor oil fell into this category, as surveys indicated that Auto Shack customers had a strong preference for private-label oils, being more concerned about the perception of guaranteed quality than the lowest price.
For many other goods, however, research indicated that customers simply wanted the cheapest price possible. In general, this criteria applied to more expensive car parts, where brand names were little known. Auto Shack developed its own sources for such products, eliminating the middleman and the additional costs of a distributor. In this way the company was able to offer less expensive products to its customers. On this level Auto Shack was structured like a vertically integrated business, although it had not taken on the complications of a manufacturing operation. The company's supply lines were directed by product managers, who visited factories and worked closely with suppliers to ensure quality control on various parts. The company's high volume of sales made it possible for specialized efforts like this to be efficient. In addition, Auto Shack's advertising department participated in the effort to define and upgrade products and then attempted to win new customers for them.
By 1986, as New Mexico was added, such practices had allowed Auto Shack to expand to 339 stores in 15 states. A new warehouse was also opened in Greenville, South Carolina. The company's telemarketing operation, Express Parts Service, logged its one millionth call, and an additional service, an Electronic Catalogue, was brought on-line on October 1, 1986, at the company's Bellevue store in Memphis. This database, installed throughout the company's stores, eventually grew to contain more than four million entries on parts for more than 15,000 vehicles.
Diversification and Continued Expansion in the Late 1980s and Early 1990s
In 1987 Hyde divested himself of all parts of his family business, Malone & Hyde, except Auto Shack, the fastest growing unit. For the first time Auto Shack stood alone, apart from its corporate parent. As a symbol of its new identity and to give the company's stores a more upscale image, the name was changed to AutoZone. The company announced that the new name would apply to all 390 stores.
The process of conversion began in the following year. An outlet was opened under the new name in Enid, Oklahoma, marking the company's entry into yet another state. Overall, AutoZone had 470 stores in 16 states by the end of 1988, and it served a total of 47.7 million customers in that year alone. In June 1988 the company unveiled its own line of auto products, developed by its product managers, under the trade name ADuralast. The number of AutoZone customers for these and other products rose to more than 51 million by 1989, the year of the company's tenth anniversary, and sales topped $500 million. By this time AutoZone had become the third largest American auto parts retailer. To continue to build growth, the company advertised aggressively on television, on radio (airing ads in Spanish and Navajo, as well as in English), and in newspapers.
As a symbolic gesture in 1989, AutoZone opened its 500th outlet, a store in Hobbs, New Mexico, on July 4, the date on which it had opened its first store ten years earlier. By the end of the year 14 more stores had been added, and all of the facilities were known by the company's new name. Under this name AutoZone diversified its outlets to include regular stores and superstores. The first of the larger outlets was opened in Memphis. Whereas the usual AutoZone store filled about 5,400 square feet and cost $200,000 to construct, the larger version cost about $70,000 more and stocked 5,000 additional items. More than 50 superstores had been opened by the middle of 1989, with the largest, located in New Halls Ferry, St. Louis, Missouri, boasting a 17,368-square-foot selling floor.
By 1990 AutoZone had expanded into two additional states, opening stores in Utah and Indiana, for a total of 539 outlets. The company also broke ground for a distribution center in Lafayette, Louisiana, to serve its expanded geographical operations and introduced another line of its specially manufactured items, Deutsch filters. In addition, AutoZone opened its first 8,100-square-foot prototype store in Santa Fe, New Mexico.
In April 1991 AutoZone ended its tenure as a privately held company when shares were offered for sale on the New York Stock Exchange. The 3.2 million shares offered produced a large paper profit for the company's primary owner, Kohlberg Kravis Roberts & Company. Under the structure of the stock offering, KKR retained its ownership stake in AutoZone, as investment partnerships run by KKR retained 68 percent of the company. AutoZone managers kept 16 percent of the company, and former managers retained another six percent, leaving ten percent for the public at large. With the ten percent of stock offered, AutoZone reduced its bank and mortgage debt and also invested in general company operations.
In the five months following AutoZone's stock offering, the price of the company's shares rose dramatically, fueled by enthusiasm for the company's rapid growth and financial prospects. In September 1992 KKR announced that it would sell an additional 2.3 million shares of AutoZone to the public in an effort to increase the company's financial liquidity and reduce the swings in the price of its stock.
While AutoZone's financial fate was being determined on Wall Street, the company's operations and expansion continued apace. Its fifth distribution center, in Lafayette, Louisiana, was opened in 1991, as were an additional 53 stores, including the first outlets in Colorado. Also in 1991, AutoZone introduced an electronic Store Management System that allowed prices to be bar-coded and scanned at checkout counters, thus speeding up customer transactions. In addition, the system allowed electronic credit card and check approval. It refined inventory control and automated in-store accounting procedures.
In December 1991 AutoZone held its first shareholders' meeting, at which the company was able to announce that gross revenues had increased more than 20 percent in the previous year to reach $818 million. Net income had risen to $44 million, an increase of 89 percent.
Relying on demographics indicating that the Midwest contained a large pool of blue-collar workers who repaired their own cars both as a hobby and to save money, AutoZone began to plot its expansion into this area of the country. In 1992 the company upped its number of stores to 678 and made its first move into Wisconsin. Company sales topped $1 billion for the first time, allowing the company to continue its string of store openings without going into debt. More openings were made in another Midwest state, Michigan, in 1993. To distribute products to its new customers, the company opened distribution centers in Illinois and Tennessee.
Mid- to Late 1990s: Growth through Acquisitions and New Store Openings
As AutoZone continued its rapid and aggressive expansion, its revenues continued to rise as well. Total revenues increased from $535.8 million in 1989 to $1.216 billion in 1993, and they showed no signs of slowing down. To better serve customers, AutoZone in 1994 installed Flexogram, a satellite-based system designed to customize store inventory according to local demands and to facilitate communications between store locations. The company, which opened an average of 250 new retail stores a year, including its 1,000th store in 1995, did not slow its blistering pace in the 1990s.
Although AutoZone was quickly emerging as the industry's retail leader, the market was becoming increasingly competitive, and the company believed that restricting itself to selling only auto parts would limit its potential. It was for this reason that AutoZone began to aggressively explore new businesses and opportunities, especially through acquisitions. In 1996 AutoZone expanded its consumer target to include commercial customers, such as professional automotive technicians and service stations. The company introduced a commercial program that provided credit and delivery to mechanics and technicians. Also in 1996 AutoZone purchased ALLDATA Corp., a software company that developed automotive diagnostic and repair software.
In 1997 AutoZone opened its 1,500th store, and Hyde, who had seen AutoZone grow from a single small store in Arkansas to a national retail chain, stepped down as CEO. He was replaced by then COO Johnston Adams. Shareholder KKR sold its 13 percent share in the company in 1998, and by 1999 Hyde had divested the majority of his interest in AutoZone, although he continued to serve on the board of directors.
AutoZone made several important acquisitions in fiscal year 1998, which ended August 29, 1998. In February the company bought Auto Palace, a retailer with 112 stores in six states in the northeastern United States. The purchase allowed AutoZone to move easily into a new market, and within a year all Auto Palace shops had been converted to AutoZone stores. In May the company purchased TruckPro L.P., an independent U.S. distributor of heavy-duty truck parts that had 43 stores in 14 states. The acquisition provided AutoZone with a doorway into the truck parts business, a fragmented industry with no clear leader and thus similar to the auto parts industry when AutoZone had first begun. The company planned to strengthen TruckPro's business and make it the industry leader. At the end of June, AutoZone made a third acquisition, Chief Auto Parts Inc., with 560 outlets in five states. The acquisition significantly expanded AutoZone's presence in the critical California market by increasing the number of AutoZone stores in that state to about 400, up from one store the previous year.
Although AutoZone was busily involved with acquisitions, the company still managed to open 275 new AutoZone stores during fiscal 1998. At the commencement of fiscal 1999, in October, AutoZone made yet another acquisition by purchasing 100 Express stores from The Pep Boys--Manny, Moe & Jack. In December 1998 the company opened its first international store, in Nuevo Laredo, Mexico, across the border from Texas. By the end of fiscal 1999 the company had opened five additional stores in Mexico and had remodeled and reopened 96 of the 100 Express stores as AutoZones. In addition, the company had also completed converting Chief Auto Parts stores into AutoZones, opened 167 new AutoZone stores, and opened three new TruckPro stores.
AutoZone was in strong shape as it celebrated its 20th anniversary. Sales in fiscal 1999 reached $4.12 billion, a 27 percent increase over 1998. The company planned to continue building its heavy-duty truck parts business and its commercial account division until AutoZone was the leader of both categories. The company also intended to continue seeking out new opportunities, particularly in international markets. Research by AutoZone pointed to international demand, and the company believed that international markets could support AutoZone stores comparable in number to those in the United States. In addition, to serve smaller U.S. communities that did not warrant full-size AutoZone stores, the company created a small-store prototype and planned to bring the total number of AutoZone outlets in the nation to more than 5,000.
Principal Subsidiaries: TruckPro L.P.; ALLDATA Corp.
Principal Competitors: Genuine Parts Company; The Pep Boys--Manny, Moe & Jack; Wal-Mart Stores, Inc.; Advance Holding Company; CARQUEST Corp.
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