Executive Interview with Mike Coppola, CEO of Advance Auto Parts

Mike Coppola, CEO of Advance Auto Parts

Posted: Feb. 13, 2006, 9 a.m., EST

In 2005, Mike Coppola was named the new CEO of Advance Auto, the country’s second largest, but arguably most progressive, retail chain. aftermarketNews recently met with Coppola to discuss Advance and its plans for future growth in the automotive aftermarket.

AMN: This year, just shortly after you were appointed as the new CEO for Advance, the company made two major acquisitions with the purchase Lappen Auto Supply in July and Autopart International (AI) in September. Together, these two acquisitions added 80 new stores on the East Coast where Advance already has strong market coverage. Are there plans to expand the company’s geographic footprint with more acquisitions like this, and if so, any plans to move South or West where your coverage is less strong?

Coppola: We look at Boston as a very challenging market to enter organically, similar to the way Washington, DC, was when we purchased 21 Trak auto parts stores in that area. Really, it was a make or buy decision, and we felt it was more appropriate and efficient to buy a company like Lappen, to help us penetrate that market.
The 19 Lappen stores that we purchased have been fully integrated into Advance Auto Parts with our banner flying in the stores. In addition, we’ve converted them to our 2010 store concept.
As far as AI goes, it was a different type of acquisition for us, one that we hoped would help us develop the commercial market more effectively, as well as giving us insight into the need for foreign name brand vehicle parts. It was only coincidental that both Lappen and AI are in the Boston market.
Long-term, we’re looking to open around 1500 stores throughout our geographic area. We’re planning to grow our store base about 6 to 7 percent per year, in square footage.
We try to keep a balance throughout, filling in existing markets. We’re currently entering a market like Houston for the first time. We started entering the Chicago market this past year. In the southeast and Florida, we have very dense coverage already, although we continue to open stores, albeit a smaller number, in those regions. We’re going to try and grow appropriately throughout.

The purchase of Autopart International brings up another question. Will there be a realignment of Advance’s DCs as a result of the AI acquisition or will a new DC be necessary to supply the stores?

This past spring, we opened a new 660,000-square-foot distribution center outside of Allentown, PA. That DC is servicing our Advance stores in the Northeast, as well as to take pressure off of some of the DCs that were previously shipping into the Northeast. Eventually, that center will service about 400 to 600 stores. As we open more stores, we’ll continue to need to open distribution centers.
As far as AI goes, that operation will be serving its stores through its own distribution center. AI grew rapidly on its own before we purchased it, and at this time, we’re examining our distribution needs for that company.

Out of all the ‘big box’ retailers, Advance has been among the most progressive in terms of such things as store layout. Tell us about the 2010 program. What was the impetus behind this revamp?

In 2001, we began developing a long-term strategic plan, looking at every aspect of the organization. We felt that there was an opportunity for us to present ourselves in a more updated way and from that came what we call our 2010 store program. Basically, it’s taking auto aftermarket retailing and moving it forward in time to reflect a much more modern, innovative layout, with a more attractive, better-lit store. And we think this will help our customers appreciate the quality and variety of products that we have in our stores. We expect to complete most of these conversions by the 2010 date.

What has the customer response been to this new format?

It’s been very positive as we continue to roll these stores out. As we’ve converted the stores, we’ve seen a 10 percent incremental lift in our sales on a market-by-market basis. So far, we’ve converted markets such as Richmond, Charlotte, San Antonio, Austin, Nashville, Denver and Kansas City, and we’re going to continue to roll those out over the next few years.

The company is also a thought leader when it comes to innovative communication tools such as “Advance TV.” How did this concept originate and how is it being utilized?

The Advance TV concept preceded me, but I believe the original concept was to use it as a vehicle for communicating to our customers, and in many cases it is our vendors communicating to our customers. I think today it has evolved into more of a consumer education vehicle that is allowing us to speak particularly to our DIY customers and help educate them. We’ve taken many of the initiatives that we broadcast on our Advance TV network and posted them to our website under the “Know-How” section, where DIY customers can go and get information on products as well as a few of the video clinics that we present on our network the last Saturday of every month.

We’ve seen in a number of places the company’s tagline “The Best Part is Our People” and find it intriguing. What is it in the company’s culture that creates this successful dynamic and what is the company’s philosophy behind training store personnel?

The tagline has existed for many years. The founder of our company, Arthur Taubman, really believed, as we do today, that the success of any company depends on the people. We go out of our way to hire technically competent people and train them to better serve our customers. We’re extraordinarily proud of our team. This is as much an internal message as it is external.
Today, we’re are focused on our new campaign, “We’re ready in Advance,” however, “The Best Part is Our People” will never go away. It’s a part of our culture. But now, we’re really trying to focus – from a consumer standpoint – on the “We’re Ready in Advance” campaign to explain to the customers that we are ready to serve them and provide the products they need every day of the year.

What percentage of your store personnel today is ASE certified, compared to say, three years ago? Do you feel that ASE certification for your employees has become an important differentiator in terms of customer service?

We certainly do. I think about three years ago we had less than one team member per store who was ASE certified. Today, we have more than two team members per store who are ASE certified. In addition to that, we really believe strongly in training and development of our team members. We have online training courses for new team members and we’re devoting considerable resources, on an ongoing basis, for not only customer service and operational training, but technical training as well.

Some in the industry may be under the perception that a traditional store has more experienced personnel. Where do you feel this perception comes from? How do you feel your people stack up against the traditional side?

I think the traditional side has done a very good job in taking care of its customers and has a lot of long-term personnel. However, I think if you were to look at the general DIY population today, they are not even aware of what “traditional side” means anymore. The aftermarket retail chains have really earned the respect of the consuming public and today consumers recognize that there is strong expertise in most of our companies. We feel exceptionally proud of the expertise on our team.
Furthermore, we implemented a consumer education program back in May of 2004 where we have kiosks with 128 brochures in our stores with free “How To” information that we think helps us build that credibility with the customers.

Many analysts and industry experts feel the ‘pure retail’ concept is limited in terms of same store growth, so many retailers have taken on the challenge of building commercial programs to help balance out the mix. What are your thoughts on the need to grow or enhance the commercial agenda?

Let me address the first assumption. We really believe that retail, and the DIY part of retail, still has a lot of upside to it. That market continues to grow about 3.5 percent a year, which, if you compare that to other retail industries in the U.S., we are in the top quartile of market growth. The market continues to grow, and if you look at our DIY comps they have been very solid.
We really look at the commercial side as an opportunity to leverage the product and people we have to help service the large number of local garages in close proximity to our stores. As with any successful business, there has to be a need and I think there was a need for these businesses to get more appropriate service and faster service. Having so many retail stores puts us in a position to be able to help those people more effectively than many of the traditional suppliers.

In order to have a wholesale program, a company must have the necessary levels of inventory. General perception in the market is that a NAPA or CARQUEST naturally has deeper coverage and a lot more SKUs. What is Advance willing, or not willing, to do in terms of investing in inventory to attract commercial accounts?

If you look at the success of our commercial sales over the last few years, I think we’ve implemented ample inventory to satisfy our growing base of customers. Much of the product in our stores has tremendous coverage already and we supplement that through our local warehouses throughout the country as well as through our PDQ network, which supplies thousands of parts to our retail and commercial customers.
In addition, I believe, in many ways we have an advantage over many of the traditional operators. We are very brand name-oriented and we believe the commercial installer appreciates that and has more confidence in brand name products. I think the proof is in our results. If you look at our sales growth, it really demonstrates that we have the product that the commercial customers want. We will continue to add more as our sales continue to grow.

Does the analyst community truly understand the automotive aftermarket? How does their understanding of this industry impact your willingness to invest in inventory?

We operate for the benefit of our customers. The analysts are very intelligent people. Unfortunately, I don’t think automotive, in general, is a very sexy business. They like electronics and some of the more faddish retail that is out there.
Tried and true, the automotive aftermarket is certainly a solid grower. Many of the Wall Street analysts recognize the strength in the aftermarket and encourage investment in all of our stocks. I think we’ve done, and our competitors have done, a good job in explaining to them the solidity of the market, the growth of the market because of the growing number of older vehicles on the road today and why there is a great need for DIY aftermarket retailers because of the economic benefit it provides to the people who do the work themselves.

It is hard to ignore the onslaught of news that has come in over the past year about the struggles going on in the U.S. automotive manufacturing sector (Delphi, General Motors, Federal-Mogul). As a business at the receiving end of the supply chain, what do you think about the (current and future) health of your supplier base?

We’re very confident that there are a large number of good, quality suppliers doing very well and reinvesting in their businesses. Our suppliers are doing a great job servicing us to allow us to better serve our customers. Certainly the situation right now with the OEs presents a negative image but I don’t think that spills over to the aftermarket. I think consumers recognize that the OEMs’ issues are different than the aftermarket’s issues. We do not depend on the OEMs for much of our product. There are lots of great aftermarket suppliers and we think we do business with the more premier suppliers in the aftermarket that have healthy businesses.

What is your outlook on the aftermarket going forward?

I couldn’t be more enthusiastic. Most of my previous career was spent in the grocery business and they have some dire circumstances going on today within their competitive landscape. The aftermarket, on the other hand, is a great industry that has excellent growth potential.
There is opportunity for further consolidation within the industry and we’re very bullish and very excited about what is taking place. I think the aftermarket, under the leadership of AAIA, has put forth a number of initiatives such as category management, the sharing of market data through NPD, which are giving a more professional air to the aftermarket and giving us a more viable future.

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