Electronic retailing expands in the aftermarket

Sept. 25, 2014
Electronic retailing will continue to grow in the automotive aftermarket parts sector, even as the share of the market held by pure-play online retailers shrinks.

Electronic retailing will continue to grow in the automotive aftermarket parts sector, even as the share of the market held by pure-play online retailers shrinks.

According to data from Frost & Sullivan, the North American market for online parts expanded from $4.6 billion in 2012 to $5.1 billion in 2013, with year-over-year growth of nearly 11 percent. The share of parts that online sales represented held steady at 4 percent in 2013.

While e-commerce among members of the parts supply chain is well established, actual business-to-consumer parts sales using e-tailing channels is a relatively new development. With the success of parts sales on Amazon and via eBay Motors, the online channel is expanding.

"We will see more omni-channel retailing," says Kumar Saha, industry principal for automotive and transportation at Frost & Sullivan. "Customers will purchase parts through multiple platforms, and service may be provided either physically or remotely through software updates. The very nature of service is no longer purely physical."

Telematics will increasingly enable location-based shopping when it comes to service. "Your car itself becomes another mobile, online connected platform for selling service or parts," Saha says. "It will transform how promotions are approached within the parts retailing space as well."

Earlier this year, the Automotive Aftermarket Suppliers Association (AASA) released a report, Digital Disruption: e-Tailing in the Automotive Aftermarket, compiled in conjunction with Booz & Co. While Booz expects e-tailing to grow as well, there are some limitations to just how that growth will occur.

"The industry is trying to figure out the best value equation that meets consumer needs, but also generates the highest return," says Curtis Draper, AASA vice president of industry analysis, programs and member services. "Traditional automotive retailers are expanding in this space, and it will be interesting to see what emerges. I think the good news is that it is a bit more difficult in the aftermarket for someone to show up with a cheap part in a white box that may or may not fit the vehicle, and be successful. The good suppliers are going to win."

That AASA report broke down the existing e-tailing market as follows: "Bricks and Clicks" (auto retailers with an online presence.) accounted for 20 to 25 percent of the market; online marketplace platforms (Amazon and eBay) held 10 to 15 percent; pure-play generalist e-tailers held less than 10 percent of the market; pure-play auto e-tailers held 50 to 60 percent of the market; and manufacturer direct sales stood at less than 1 percent.

Booz estimates that in 2013, e-tailing sales accounted for 4 percent of all sales in the automotive aftermarket. In the DIY segment, however, penetration stood at 7 percent (compared to 1 percent in the "do it for me" segment). Even with the expected growth, e-tailing is unlikely to upend much of the existing channel model.

"Our members have built relationships with their channel partners, so we don't expect this to throw a loop into that," says Bailey Overman, AASA senior analyst of industry analysis.

E-tailers lose share to traditional parts stores

According to Frost & Sullivan, the biggest growth in e-tailing was not with pure-plays like Amazon and U.S. Auto Parts Network, but with traditional automotive retailers. AutoZone's e-commerce business grew 60 percent last year, primarily through its acquisition of retailerautoanything.com. AutoZone's online revenue accounted for more than 3 percent of total sales. Pep Boys, meanwhile, expanded its e-business by nearly 100 percent.

U.S. Auto Parts Network, the largest online parts retailer in North America, saw its revenue and profitability drop by as much as 10 percent to 15 percent each quarter last year.

"Pure plays will lose ground in North America as traditional and mass retailers expand sales," Saha says.

If these trends continue, companies like AutoZone will represent nearly a quarter of total online parts market by 2020, while pure-play e-tailers will see their share shrink to less than 20 percent. Market winners will differentiate themselves through customer convenience, delivery times, shipping cost, flexible fulfillment and service packaging.

"Pricing has played a central role in the growth of online retailing," Saha says. "Going forward, as everybody readjusts to online pricing, fulfillment and logistics will drive sales. Investments will go into how you deliver the product to the consumer. That will be critical to who wins or loses in this market."

By 2020, Frost & Sullivan expects online parts sales penetration to reach 10 percent, generating more than $16 billion in revenue in North America. Online and mobile channels will account for nearly $40 billion in sales for auto parts in North America and Europe by 2020.

In Europe, Saha says online penetration will reach 11 percent of the aftermarket by 2020. In Russia, the online market is expected to grow 30 percent because of the large number of DIY customers and the fragmented aftermarket.

The biggest success story for online aftermarket retailing in Europe has been tires. Saha says online sales account for 44 percent of the total tire market there. "There are not that many low-cost tire providers in Europe compared to North America, and online tire retailing was able to fill that void," Saha says.

AASA believes that there are structural obstacles in the aftermarket that will prevent penetration from growing much past that 10 percent mark in most segments, primarily because most parts are needed the same day for repairs, and most consumers need tips or instructions on how to install the parts. Additionally, many parts are too large, heavy or cumbersome to ship to consumers in a cost-effective manner.

"You have to have some skill in order to find the right part," Draper says. "If your water pump goes out, you care a lot more about getting it running now than waiting for a few days for a FedEx shipment."

Booz expects e-tailing to reach 7.3. percent market penetration overall by 2018. E-tailing will reach 17 percent market penetration in the DIY segment.

AASA believes that while e-tailing will remain a relatively small part of the aftermarket, it will shake up the industry by affecting how consumers research and buy parts. Aftermarket suppliers need to have an effective presence online to take advantage of the fact that consumers and repairers begin their parts purchasing process online, even if they buy off-line. Saha says that 70 percent to 80 percent of end customers are doing research online for parts, and by 2020, three out of four leads for new vehicle sales will be generated online or via mobile phones.

More importantly, e-tailing creates much more price transparency. Since e-tailers can offer parts at lower prices (because they have lower overhead) there has already been downward pressure on prices. The availability of cheaper parts from foreign suppliers also has affected margins in the aftermarket.

"There is a lot of visibility that wasn't there before," Overman says. "Consumers can get more educated about the part they are purchasing, which can pose a problem for service technicians."

"As a good supplier, you have to differentiate yourself from the low-cost suppliers in other pats of the world," Draper says. "There will be a lot more pressure to provide high-quality parts and to have a strong online presence."

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