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Advance Auto Parts CEO Tom Greco on Tuesday said the company plans to bring in outside help to compete against e-commerce giant Amazon.
“So when you talk about Amazon particularly, we’ve had to recruit some people into the company who can really help us compete vigorously against formidable competitors like Amazon,” he told FOX Business’ Liz Claman on “Countdown to the Closing Bell.”
The company is trying to engineer a business turnaround by using its savings from the tax reform bill and is taking steps to step up its e-commerce program.
“We’re investing in e-commerce and our technology programs because we know that’s going to be important,” Greco said. “We certainly made big investments in customer service because the experience that our customers have both online and in the stores is critical and then in our people.”
According to Greco, one of the biggest focuses of the plan is to incentivize its employees.
“Overall, we have a plan that is going to invest significantly back in our employees,” he said. “We have front-line employees all over the country who are really important for us. We want the very best parts people in the business working for Advance.”
After President Donald Trump signed the Tax Cuts and Jobs Act, which slashed the corporate tax rate to 21% from 35%, companies began giving incentives to their workers including salary hikes to $1,000 bonuses.
As a part of the auto parts retailer’s turnaround strategy, the company introduced a stock ownership program that provides its top-performing employees with stock options.
“We actually introduced a stock ownership program for them for our top performers so that they can earn stock in the company,” he said. “We feel that is a really good retention move for us, and it has dropped our turnover significantly.”
So it seems that Amazon has switched most of their prime member orders to the USPS, probably to save costs. The issue is that the US Post Office does not make deliveries if you are on a private road, unless you have a mailman going outside the policy. I even spoke to the post master of the local office and he's getting complaints from residents who are not getting their packages and have to go pick up at the post office! The mailman is even dropping off a slip that says "Sorry we missed you" or "Delivery attempted" when in fact the package never leaves the post office and they just use that form. It's a joke and my taxes at work, can;t get any more packages from USPS and that includes the majority of them from Amazon.
With Amazon's main carrot being delivery and Prime within two days, that's going away for me and for others on private roads unless they switch back to UPS. There is no point if I have to go to the post office to pick it up, no convenience there. Amazon should have negotiated better with the USPS.
Activist investors targeting auto-parts retailers are taking hits to their investments, and Amazon isn’t helping.
When hedge fund Starboard Value LP disclosed a stake in Advance Auto Parts Inc. in 2015, it said the stock, then at $171, could more than double. The retailer’s shares have instead nearly halved since then, after warning weak sales will continue for an industry that’s also drawn interest from billionaire Carl Icahn. Advance Auto’s peers O’Reilly Automotive Inc. and AutoZone Inc. also have also plunged this year amid disappointing demand.
Perhaps the biggest bogeyman weighing on the shares is Amazon.com Inc., which sent shockwaves across the retail industry in June with its $13.7-billion acquisition of Whole Foods Market Inc. The online juggernaut has also been making inroads with autos, launching a car-research site and a parts marketplace last year. While car-part distributors -- with their technical expertise, trove of components and ability to quickly deliver to mechanics -- are more insulated from e-commerce than other retailers, though they’re not invincible.
“We fear an increased level of price transparency -- these companies either more aggressively price or promote their products to drive the same level of sales growth,” Seth Basham, an analyst at Wedbush Securities, said of the auto-parts retailers. “I don’t think it’s a primary driver of what’s been hurting same-store sales in the industry this year, but that doesn’t mean there can’t be a bigger impact going forward.”
The more immediate challenges dragging on the industry include economic uncertainty for low-income customers, higher gas prices and warmer weather that has eased the wear and tear on consumers’ cars, Advance Auto Chief Executive Officer Tom Greco said Tuesday.
Starboard’s view is that Amazon is a mild headwind -- at most -- to the industry, a person familiar with its strategy said. The New York-based hedge fund is pleased with Advance Auto’s efforts to cut costs and bolster its online presence and sees earnings improving early next year, said the person, who asked not to be identified because the matter is private.
Further encroachment by online rivals could pose a threat to industry profit margins that are in excess of 20 per cent -- part of what initially drew investors like Starboard and Icahn to the aftermarket parts business.
With the average age of vehicles on American roads approaching 12 years, investors also are betting an older vehicle fleet will mean more repairs and parts replacement. To capture that expected growth, Icahn has strung together several companies that deal in automotive parts, including service and retail chain Pep Boys, Auto Plus and parts supplier Federal-Mogul.
For now, e-commerce represents a sliver of the $277-billion aftermarket parts business, according to estimates from Wedbush and the Auto Care Association, an industry trade group. Online sales were about $11-billion last year, with EBay Inc.’s roughly 40-per-cent share being the largest, Wedbush estimates. Amazon had about a 25-per-cent share, though it’s growing at a rapid clip, Mr. Basham said.
Amazon launched the Amazon Automotive store in 2006 and has been expanding its inventory since then. It’s added a parts-finder filter that lets shoppers enter the make and model of their cars to find the correct parts.
“We’re continually expanding our selection and improving the customer experience with things like our Part Finder, Amazon Garage and, most recently, Amazon Vehicles,” a company spokeswoman said in an email.
Icahn Automotive, which owns Pep Boys and Auto Plus, and Starboard declined to comment. Spokespersons for O’Reilly, AutoZone and Advance Auto also declined to comment.
In trying to assess the potential threat from Amazon and other online parts sellers like RockAuto and EBay, analysts are honing in on retailers’ exposure to the consumer-facing “do-it-yourself” market, as opposed to the “do it for me” approach in which retailers sell to professional mechanics. The do-it-yourself market could be more vulnerable because consumers who aren’t in a hurry to buy a new wiper blade or spark plug may go online to find the cheapest price.
The do-it-yourself segment already is lagging, according to the Auto Care Association, which estimates sales will grow at a compound annual rate of 3.8 per cent in the five years ending in 2017, compared with a 4.4-per-cent increase for the do-it-for-me market.
The slower growth also is a reflection of cars getting increasing complex and loaded with technology, which contributes to more repairs necessitating technicians, said Behzad Rassuli, senior vice president of strategic development at the Auto Care Association. Some bumpers, for instance, now are built with embedded sensors that need to be properly calibrated.
“The opportunity for the consumer to repair their own vehicle has been dwindling,” Mr. Rassuli said.
Mr. Icahn said as much when speaking about his acquisition of Precision Auto Care Inc. in June, the latest addition to his chain of auto-repair shops. He’s also planning to take advantage of higher utilization of cars driven by the growth of ride-hailing businesses, he told the Wall Street Journal in an interview at the time.
Greg Henslee, O’Reilly’s CEO, has said the impact of companies like Amazon will be limited because they will struggle to sell component to consumers who don’t know what’s wrong with their car. Online retailers “will continue to take a little bit of market share here and there,” Mr. Henslee said on an earnings call in February. “I don’t see them nearly as one of our most prominent competitors.”
Even if their expertise diagnosing car troubles offers some protection, traditional parts retailers still are under pressure to improve their digital experience, especially since a buyer will often go online to ensure a part is in stock before picking it up at a store.
Advance Auto is investing heavily in technology to ensure a “consistent experience every time, both in-store and online,” Mr. Greco said on the company’s earnings call Tuesday. He told analysts consumers will have a “faster and more frictionless experience” online.
If you’re a parts retailer, “you’re definitely concerned,” Wedbush’s Basham said. “You’re thinking about ways to defend your turf and to capitalize on the way consumers are changing their behaviour.”