by Jon Owens, AAP
Publisher, aftermarketNews.com, Counterman Magazine
AKRON, OHIO — The automotive aftermarket continues to be an extremely complex challenge to high-flung retailing executives. Steve Odland’s recently announced departure from the top position at AutoZone is just the latest in a long line of high-level executive escapes from our unheralded industry. I wish Odland the best of luck at Office Depot, where (and, I don’t care how much White Out you use) the challenge to “profitably grow” would seem to be much easier. However, this is not so much a commentary on Odland leaving AutoZone, as it is on the ever-increasing complexity and challenges of our market.
A retail background in our industry may assist in curing our merchandising challenges, and in many cases will help deliver more efficient processes to the logistical side of operations. Unfortunately, driving cost out, and increasing turns on non-application-specific items like motor oil is only half the battle in our market. The rubber literally meets the road when a wholesale customer demands a set of plug wires for a ’99 Audi A4 in less than 30 minutes. And, the customer will often only accept the exact same plug wires that were originally installed at the factory.
Product-specific need is an entirely different dynamic than general consumer demand. If Office Depot doesn’t stock the exact same stapler I want, I may be upset – but probably not upset enough to walk out and drive somewhere else to find it. Chances are, I will buy one of the staplers that Office Depot stocks. Not so when dealing with the fickle demands of the aftermarket wholesale customer. Most often, only having the exact part, in the exact place, at the exact time of need will work.
Sound crazy? It is. But, we’re guilty of over-servicing our market and we must now live with the penalties that go along with it. Odland didn’t create these circumstances, and he may be a better top executive because of them. Many retail executives, across all types of industries have pinned their successes to real estate and demographics. Accurate forecasting of demand (aided by clean data effectively communicated up and down the channel) is another recipe for retail success. Note that Odland tripled the value of AutoZone stock during his less-than-five-year tenure. Unprecedented growth and earnings will certainly be one of his hallmarks.
But another hallmark may be at the crux of his departure. Do I need to say it? Okay, it’s POS – and I don’t mean Point of Sale. Speculation as to why POS became part of ‘Zone’s strategy ranges from being a tool that would help focus manufacturers/suppliers on product sales to a financial play by ‘Zone to place the burden of inventory costs back onto the manufacturers/suppliers so as to improve ‘Zone’s bottom line. Since POS was implemented during Odland’s tenure, it will forever remain his legacy. So, the jury is still out as to how successful a leader he truly was.
POS was introduced in January, 2003 and to say that it has been less-than-enthusiastically received would be an understatement. Unfortunately for Odland, his fate was tied to this ill-fated strategy. But in the end, big leaders must accept big responsibilities.
Which brings us back to the “Real World” known as the automotive aftermarket. Our own “reality” show makes “Fear Factor” look like a Sunday Brunch at the Ritz! Odland is just the latest to leave the island. But, can you blame him? This is a difficult market that puts a premium on complex business management skills and requires long-term patience, two qualities that earn a collective “yaaaaaawn” from Wall Street analysts. When growth is at a standstill (check ‘Zone’s past three quarterly results), Wall Street gets antsy.
Ever sit in and listen, I mean REALLY listen, to a quarterly conference call with analysts? Here’s how MarketWatch columnist Herb Greenberg described Odland’s conference call acumen: “Spin has always been part of Odland’s style at AutoZone.”
Well, of course. It’s part of every CEO’s style on any conference call ever made. What were you expecting? The truth? If it’s “truth” you want, then here you go: The truth is, the automotive aftermarket is a highly complex, inventory intensive, prescription part industry. It requires highly skilled management across all segments of the business. It does not grow at a rapid pace. Rather, it is steady growth awarded to only the most highly skilled practitioners who have carefully crafted their positions in the market and are able to meet, in most cases but not all, the “over-the-top” service expectations of the customer. Do you want to play in our market? In my opinion, POS was a financial play to appease overzealous analysts who saw ‘Zone’s inventory levels skyrocket. Odland was simply doing what it takes to win in this market: To accumulate accurate (well, as accurate as possible) inventory to meet the huge demands of the wholesale market. POS probably has a small place in our market, but not attached to prescription parts based on specific need.
Long-time experts who have been practicing within this industry are still striving to achieve operational nirvana, that perfect mix of inventory turns, gross margin, sales growth and increasing profits. It’s what makes our industry so challenging, so desirable to top-level executives seeking the ultimate challenge (okay, maybe not). AutoZone is a very successful part of our industry, loaded with talented people at every level. It is the number-one store chain in the market, and it deserves praise and respect. It has expertly serviced the needs of the DIY market for many years, and has achieved unprecedented growth. However, its long-term success will be pinned to technology and personnel, not an inventory game called POS. The growth honeymoon is over. Just ask Steve.
_______________________________________
Click here to view the rest of today’s headlines.
