In part two of this multi-part series, aftermarketNews sits down with Richard "Dick" Morgan, a 48-year veteran of the automotive aftermarket industry who on Dec. 31, 2009, celebrated his retirement from the position of president and CEO of Aftermarket Auto Parts Alliance, a position he held for the past 16 years. In this exclusive interview, Morgan reflects on the accomplishments he’s most proud of, the changes he has seen in the nearly half a century that he’s been in the industry and what he hopes and expects of the future. In Part Two, Morgan shares his expectations for the distribution segment in the next five to 10 years.

To read Part One of the interview, click here.

What do you think the aftermarket landscape is going to look like in the next five to 10 years in terms of two-step vs. three-step distribution?

I think we’re going to continue to see some three-step distribution because of Americans’ love affair with the automobile throughout the country. When your car breaks down – it doesn’t matter if you’re in Muleshoe, Texas, or Orlando, Fla., you want it fixed that day, or the next day, at best. So, we’ll still need three-step distribution to get parts to all those locations. But there’s only room for two steps of gross profit and that’s the difference today.

You really have to forget about wholesale, retail, two-step, three-step. All those terms are going away. I remember when, before the retailer, you had the mass merchandisers (Sears, JCPenney) trying to get into the parts business and that was a different era. They never were very successful but when the true retailers came about you had pure retail stores and you had pure ‘mom and pop’ jobbers. There were about 28,000 to 30,000 jobbers and then these retailers came along. I watched it go from the ‘mom and pop’ stores to pure retail, like AutoZone, for example. Then everyone headed toward the middle trying to be like O’Reilly. O’Reilly started as 50/50 so everybody was trying to be like an O’Reilly-type store. That’s why I say forget about retail/wholesale. A parts store is a parts store and you just have to learn to live within the gross profit you have.

What do you think the best mix is between wholesale and retail?

That is very subjective to where you are. In the early days when O’Reilly said they were 50/50, some stores were actually 80/20 in a lot of areas. When they bought Hi/LO you have to remember, Hi/LO was larger than they were when they took it over. Hi/LO had more stores in large metropolitan areas, which gave them a lot more retail business. That’s when it really put them in the 50/50 range. More importantly, their scope or their goal was always 50/50. This is just my opinion, but I think their philosophy was to sell parts to everybody, so that’s why they said they’re 50/50. Even if a particular store was 80/20, they didn’t want them to pass up going after any business and that’s the important thing to realize – they were after all business: fleet, shop, service station, walk-in trade. They were one of the first traditional jobbers that really welcomed retail trade.

I guess the first one ever, before you were born, were the Pettigrew-Smith people in the ‘50s in Houston. They were the first to pull back their counters and open the door and sell at the same price to anyone who came in. Of course, everyone told them they would be complete failures but they did pretty well and built up a nice big chain before selling out in the ‘80s.

What do you think about the AutoZone’s and Advance’s of the world going after more commercial business?

I think it’s the natural thing to do. You have a big store with a lot of inventory; you might as well go after every kind of business. Truthfully, they’re all trying to do what O’Reilly mastered early on. It’s savvy. I think they are doing fine. I do know that where they have some really good locations with some very strong stores, the people at the Auto Value/Bumper to Bumper stores compete very successfully with them. Those who still perform and execute properly can compete with anybody.

Retail stores have been criticized by some in this industry for not having what are deemed to be the most experienced counter professionals. Do you think that is what differentiates the traditional jobbers and parts professionals – like those at the Alliance – experience and knowledge?

I’m not sure. I think people still buy from people who take care of them best. I think it’s still an individual thing. In Houston, I used to drive by two hardware stores to get to one that I knew when I walked in the door, first, they acknowledged that I was there, and then, when they did get to me they were very knowledgeable, helped me and didn’t waste my time. And, I think that’s who people do business with, people who take care of them. I’ve known people throughout my career who’ve paid more for parts from people who take care of them right. Prices are important – you’ve got to be competitive, but I still think that in terms of knowledgeable countermen, the Auto Value/Bumper to Bumper store people by and large are excellent, trained, knowledgeable countermen, and that’s who people want to do business with. They want to do business with someone who can help them.

You do business with someone who can make your life easier, whatever it is, but there are no solid answers to anything. I can take you all over the country to various places where it’s done differently. That’s the free enterprise system at work. The traditional automotive aftermarket is probably the greatest example of free enterprise this country has ever known. Stop to think about that. Think about guys going into this business when they didn’t have anything and becoming very wealthy people.

What are your thoughts on growth in the retail sector when looking at growth in “bricks and mortar” vs. online?

Retail is going to continue to grow. I don’t think they can continue to grow at the pace they have in recent years, in new brick and mortar. I think they’ll still be looking for appropriate acquisitions, but there are getting to be fewer and fewer fits for acquisitions.

Stay tuned for Part Three of our Executive Interview with Richard Morgan in tomorrow’s edition of AMN.