Commerce and connectivity: Overcoming availability challenges

Oct. 26, 2017
Is there a magical moat around the auto parts business filled with millions of SKU’s and lightning fast delivery requirements that will protect it and dissuade Amazon from buying a top-three auto parts retailer?

There are more than one million products needed to keep the vast nationwide vehicle fleet rolling. The aftermarket distribution network has evolved to get almost any part, anywhere in a single day – often in less than one hour.

But visibility and transactional access to that network of products has been under invested and is currently a weakness of the aftermarket that online retailers would like to exploit.

Which leads me to Amazon. Groan. So much has been written about the behemoth who will gobble up the parts business and drive down the stock value of leading parts retailers that it’s hard to think of something that hasn’t already been said.

Is there a magical moat around the parts business filled with millions of SKU’s and lightning fast delivery requirements that will protect our way of life? Is it possible to out-service the recognized champion of online service and dissuade Amazon from buying a top-three auto parts retailer for something close to the $13.7 billion they spent on Whole Foods? I believe there is.

The answer may lie in an auto parts industry report compiled by Credit Suisse with the revealing title: E-commerce Deep Dive; Store Centricity Battling Online Price & Availability Challenges. Like so many other Wall Street reports, this study aims to understand if the incumbent brick and mortar auto parts retailers really deserved to get their stocks knocked down 20 percent to 40 percent on news that Amazon was buying major brands direct. The Credit Suisse report used a combination of a 750-household consumer survey as well as a hypothetical shopping cart of 400 typical replacement parts for popular Toyota and Ford models six to eight years old.

I’ll skip to the end and share the conclusion: “We do not see online disrupting Auto Parts like it has other categories, as our analysis points to some clear barriers including a heavy service component and same day requirements. However, we show that "omni-channel" is becoming more important, and there are some gaps in brick & mortar retailers' online inventory availability and pricing based on our analysis, that may require some changes.”

Let’s break down this conclusion and see where it leads us.

It will be comforting to auto parts retailers to learn that the barriers to disruption may be real. Eighty-five percent of the consumers surveyed said they preferred to buy auto parts at a brick and mortar store (that includes buying from that brand’s website and buy-online pick-up in store). Consumers explained their reason for preferring the brick and mortar stores as saving time and access to advice and customer service.

More than 50 percent of the time, there is urgency to the purchase due to part failure or vehicle down time. The analysis states that “urgency may be underappreciated in the industry and … should be protected.”

Finally, consumers indicated that availability was the leading factor in deciding where to buy auto parts, followed by a convenient location and availability of customer service, with lower prices and brand selection ranking lower in importance.

So the good news is that auto parts retailers have a category that is urgently needed most of the time when it is needed, and availability and service are king when it comes time to buy. Price is down the list of factors when it comes to getting a vehicle back on the road.

The conclusion of Credit Suisse continues, however, to suggest auto parts retailers are not fully prepared to reap the rewards of the growing use of omni-channel. Omni-channel refers to the blending of online and offline behaviors, including buying from the brick and mortar retailer’s website for home delivery, shopping online and picking up at the store, or buying online from a pure etailer.

Fully one third of the consumers in the study indicated a preference for some form of omni-channel and 35 percent indicated they intend to buy more online in the coming year. Other studies have reported that 80 percent or more of auto parts purchases begin with online research. It should surprise no one to learn that more and more purchases begin and often end online. This trend is irreversible.

The research found that brick and mortar retailers came up short in two important areas – availability and pricing. Let’s set aside the 20 percent or more price advantage of the online retailers. There is no surprise that without stores and staff, pure online can price well below brick and mortar. Besides, price only becomes most important if the customer has the luxury of time to wait for delivery.

But, with a hypothetical shopping cart of 400 SKUs for a six to eight-year-old Toyota Corolla and Ford F150, parts online were available for in store pick up only 46 percent of the time and availability for home delivery was 75 percent. Availability from Amazon and Rock Auto was 96 percent to 98 percent. To be fair, the analysis followed up with the stores and found that most of the parts not in stock could be source from a hub store or distribution center in a day or two.

It stands to reason that a 6,000-square-foot auto parts store cannot have the availability of a massive online fulfillment center. But, what’s needed to be competitive and meet the rising expectation of the omni-channel customer is the technology and channel visibility to seamlessly present product as available today, tomorrow or later.

A major auto parts retail executive once described to me his vision for escalating the search for product automatically on their website and on their point-of sale terminals. “We almost always have the product in our distribution network somewhere or available from our manufacturer partners,” he explained. “We always want to say ‘yes.’”

And isn’t that what the online giants like Amazon do? They give the illusion of infinite aisles of availability by seamlessly presenting product for shipping from their distribution centers or rolling over to a network of connected fulfillment partners. All the promised ship dates and costs (if any) are on the screen, so the buyer can make an informed and quick decision.

The tools to compete for the business of online and omni-channel customers are available to the aftermarket distribution chain today. EDI, Web Services, API’s and other forms of communication, connectivity and data sharing are in use today – however, not widely enough.

More connectivity will lead to more online commerce through existing auto parts distribution and further widen that defensive moat against Amazon and other retailers. It’s clear that further investment in online inventory availability is needed to keep the amazing aftermarket supply chain relevant in the age of online commerce.

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