As online retailers, such as Amazon, increasingly enter the auto parts industry, do they pose a threat to traditional companies in this space?
UBS analyst Michael Lasser spoke to O’Reilly Automotive CEO Gregory Henslee during the company’s fourth-quarter 2016 earnings call this week to gain his insights about the emerging online competition within auto parts.
“We’ve not seen much in our business that’s led us to be very concerned about it,” said Henslee. “These online retailers have been around for a long time and I realize that Amazon is the strongest and the best-run…and I’m a customer for household items and other things. But one of the things that – or some of the things that are a barrier to entry for these guys are that we’re in a very technical business.”
Henslee continued by explaining that customers may not know what’s actually wrong when they experience problems with their vehicle. In these scenarios, O’Reilly employees will conduct tests and help customers install what is required, which differentiates the company from online competitors.
“We’ll get them lined up with a technician to help solve their problem if they can’t,” Henslee explained. “Many times, their problems are what I call driveability problems, they’re related to sensors, or emission system things that cause the check engine light to come on, or a variety of things. We have highly experienced trained professionals in our stores that help them solve these problems. I mean, it’s just a highly technical business. And then on top of all that, learning and developing the science to know what inventory you need in different markets takes time and experience, and that’s – the reason that our company, one of the reasons we’ve done so well is because we’ve been so good at that, plus there’s almost 36,000 parts stores in the U.S. It’s very convenient to get parts and there’s a high immediacy of need when you have a car problem.”
Considering the range of valuable services provided by O’Reilly’s employees, Henslee believes that it’s difficult for online retailers to penetrate the same market.
“When I think about the relationships that we have with our professional customers and the dependency that they have on us to provide them training and guidance and access to tools and the equipment to keep their tools running and their equipment running,” Henslee continued. “And how quickly they need parts and how if they’re not sure maybe in a model year change where a car might take one of two parts, we’ll send them both and bring the other one back. We’ll match up parts for them. Just, the list goes on and on and on of the things that we do, plus we’re making a distribution center inventory available to them. In many markets, six, eight times a day, which is – I think that the online retailers, while they’ll – as they have proven over the years – they’ll continue to take a little bit of market share here and there, I don’t see them nearly as one of our most prominent competitors.”
The following are the fourth-quarter 2016 results from O’Reilly Automotive, as reported by Business Insider:
- 18% increase in earnings to $2.59 per share in the fourth-quarter of 2016 from $2.19 in the fourth-quarter of 2015.
- Quarterly revenues increased by 8% to $2.10 billion from $1.95 billion a year ago.
- Comparable store sales increased 4.8% in the reported quarter in comparison to a 7.7% rise in the prior-year quarter.
- Gross profit increased by 8% to $1.11 billion (53.1% of sales) from $1.03 billion (52.7% of sales) one year ago.
- Earnings for full-year 2016 increased by 17% to $10.73 per share from $9.17 in 2015.
- Revenues for 2016 increased by 8% to $8.59 billion from $7.97 billion in 2015.