AutoZone VS O’Reilly: A closer look to the auto-parts top retailers

AutoZone is a retailer store which is focused on the sale of auto-parts with more than 3,600 stores nationwide. AutoZone opened its first store in 1,979 in Forrest city, AR and since then it has expanded to become the leader in auto-parts in the U.S. However, how profitable is Auto-Zone within the industry? In order to answer that question a brief analysis of the financial statements of other auto-part retailers was necessary. Thus, here the numbers:

AutoZone total assets for the years 2003-2006

2006	2005	2004	2003
$ 4,526,306	$ 4,245,257	$ 3,912,565	$ 3,766,826

AutoZone total liabilities for the years 2003-2006

2006	2005	2004	2003
$ 4,056,778	$ 3,854,250	$ 3,741,172	$ 3,393,068

O’Reilly total assets for the years 2003-2006

2006	2005	2004	2003
$ 1,977,496	$ 1,713,899	$ 1,432,357	$ 1,157,033

O’Reilly total liabilities for the years 2003-2006

2006	2005	2004	2003
$ 613,400	$ 568,130	$ 484,540	$ 372,748

Debt/Asset ratios between AutoZone and O’Reilly

	Autozone	O'Reilly
2006	0.896	0.310
2005	0.908	0.331
2004	0.955	0.338
2003	0.900	0.322

The data was pulled from the following websites:

www.autozone.com

www.oreillyauto.com

The ratio of both companies is less than 1 which indicates that both company assets are financed through equity. Definitely AutoZone is in a better position than O’Reilly, because not only AutoZone has more assets but its assets are not based solely on debt. Another look at the financial statements reveals a more expansion and a good income derived from operations for the same years.

AutoZone has developed a close relationship with its suppliers which allow the company to provide information in real time to customers about availability of auto-parts, warranty information and other issues. AutoZone’s Znet computer system was developed with a synergistic perspective because it ties suppliers and inventory of each store altogether into a huge database. Thus, customers can get parts on hold on other stores and special order parts directly from the suppliers. This information sharing of its supply chain to the stores inventory seems not an advantage over AutoZone’s competitors, but a necessity tool to survive into its highly competitive environment. O’Reilly seems to have a similar computer system and Napa on the other side which has more rare parts than other auto-part retailers.

The auto-parts retail business is very competitive. Small auto-part stores have to compete with the giants AutoZone, O’Reilly, Napa, and recently the auto-part retailers online. The fact that these companies have been around since a long time emphasizes their close relationship with its supply chain, and a huge customer list. The bargaining power of buyers is high, so many auto-parts retail stores offer match-pricing, several discounts, promotions, and extra-services. In an effort to keep enjoying higher profits AutoZone carries several types of brands. Some of these brands are exclusive and the other brands, like Valuecraft, at very competitive prices—sometimes 2:1 on the price ratio.

On the other hand suppliers are not being squeezed because the retail business relays heavily on the quality of the parts delivered to the customers. AutoZone remarks this issue by providing lifetime warranty on its brand Duralast. The rivalry among existing firms is moderate. So, it is frequent to watch Autozoners pretending to be customers on the phone calling O’Reilly for prices—it happens vice verse. About auto-parts, there is not really a good substitute; unless everybody decided parts from a wreck yard are a better choice. But once again, an increase in the demand will pull prices up from our friends the salvage auto-parts.

It would have been impossible for AutoZone managers to achieve such success if they were in a constant fight with its suppliers for cheaper prices. Thus, it seems everybody has benefited from a successful symbiotic relationship of AutoZone towards stakeholders.

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