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Staid CARQUEST makes bold acquisition

Wednesday, December 1, 2004 - 01:00
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Word spread around the aftermarket in late September that CARQUEST had acquired a company called Worldpac. For some, it raised eyebrows, but for the vast majority of observers, the response was, “Who’s Worldpac?”

I long have been an admirer of Worldpac. For the three years I’ve watched them, they have been a remarkable case study in taking the traditional aftermarket business model, standing it on its ear, kicking backsides and taking names.

Under the radar, they have quietly built a several hundred million dollar aftermarket business that is quite unlike any other. Perhaps they evaded detection because they don’t really compete with any of the “majors.” They have had a laser-like focus on highly specialized import repair shops, primarily those with a focus on high-end models — with names like Franz’s Bavarian Works or Just Jaguar — as well as Asian specialty repair shops. These sorts of repair shops historically bought most of their parts from OE dealerships and import expeditors. It was only occasionally that they would make a purchase from a traditional parts store, and that most likely was for a value-priced part or some shop supplies. As such, few manufacturers or parts resellers were even aware of Worldpac until recently and most were not aware of them at all. In fact, I commented on the acquisition to a senior person at a large manufacturer and his response was, “Yeah, I heard something about that. Who’s Worldpac?”

I first became aware of Worldpac while conducting focus groups with technicians. In late 2000 and early 2001, I began to encounter more and more techs who said Worldpac was their primary import parts supplier. What was so fascinating was how nearly “evangelical” these Worldpac customers were. I recall one focus group where at various points in our discussions, different techs would bring up various complaints about local parts houses. In the midst of every complaint, the Worldpac customer would interrupt and explain how such a thing could never have happened with Worldpac, carrying on ad nauseam about their virtues. He talked about their Web-based ordering when someone mentioned bad counter service. He extolled the virtues of their regular delivery schedule when someone mentioned having to wait for parts. And he raved about how their parts always matched the OE parts, that they even sometimes carried the OE brand. Half the group wanted to throttle the guy for boasting so much about his vendor while the other half took notes and wanted to learn more.

I couldn’t remember seeing any technician so passionate about his parts supplier. Ever.

For those of you unfamiliar with Worldpac, here’s a bit of background. There was a term for a particular business model that was hot during the dot-com craze a few years back. The term was “disintermediators” and it was used to define those business models that utilized the Web to remove the intermediate steps in the distribution process and more directly connect the manufacturer with the end user. A perfect example was Amazon. They bought directly from book publishers, disintermediated the book distributors and retail stores and sold directly to the consumer. In their case, it is a model that has worked very well.

Anyone who was around for those wacky days no doubt recalls the slew of dot-com start-ups that were going to turn the aftermarket upside down. Most had names like autothis.com or partsthat.com. Every one of them claimed they would “change the way auto parts were sold.” Word was that they were going to put all the “brick and mortar” parts people out of business. What is interesting is that Worldpac adopted pieces of that strategy and quietly succeeded at implementing an Internet-based model while other, more visible and vocal ventures, failed.

In the simplest of terms, Worldpac acquires parts globally, primarily from companies that supply components directly to the OEM. They then redistribute those parts in North America. In this regard, they are not significantly different than a handful of other companies such as Beck/Arnley. Where they are different is in how and to whom they sell. The aforementioned companies sell to distribution: either retailers, distributors, jobbing stores or some mix thereof. Worldpac sells directly to specialty import repair shops, primarily those who carry significant stocks of import parts. And they do so with a very sophisticated Web-based electronic catalog. This catalog allows technicians to select from a variety of parts for their application at different levels of quality from different vendors, sometimes including actual OE-branded products. It also features detailed descriptions of features and benefits and the ability to view multiple images of all the products offered.

As impressive as that is, the technology they make available to their customer doesn’t end there. They offer shop management programs and other electronic tools to make the service tech more efficient in his or her business. In exchange, they ask customers to order electronically to help keep costs down and display some degree of financial loyalty in the form of monthly minimums. The customers are obviously responding based on Worldpac’s enviable growth and the fact that well over half their orders are placed electronically. They have created a loyal, if not evangelical, customer base that sings their praises regularly.

Also, I long have been an admirer of CARQUEST. While retailers have attempted to become more credible sources for service technicians, and wholesalers have tried to add glitter to their stores to attract DIYers, CARQUEST has remained true to its mission. And that mission is providing professional technicians with the parts and services they need to fix cars. While CARQUEST stores are clean, attractive places where consumers feel welcome, the store is primarily there to service the technician. It is their laser-like focus on technicians and how they construct a business model around the tech’s needs that makes CARQUEST different from almost every competitor.

Worldpac might have been the first serious threat to the CARQUEST business model to come along. It was certainly the first radically different model to succeed. Perhaps this is what caused the CARQUEST executives to get interested in Worldpac in the first place. Maybe they saw some of that same passion and evangelicalism that I saw from Worldpac customers in those focus groups. Maybe they spent some time on the website and saw what an investment in technology can do for creating a unique marketing point of difference. Maybe they were scared by the ever increasing migration of independent service tech business to OE dealerships. Perhaps they were particularly struck by the growing demand for parts that have the form, fit and function of the parts taken off the vehicle, especially in the import segment. Maybe they realized that if a parts seller could get a majority of their customers to place their orders electronically, the resulting efficiencies and savings could have a profound impact on their bottom line. 

It is becoming apparent that CARQUEST, more than many of its reseller brethren (especially on the “traditional” side), is awakening to the importance of technology as a tool in its business. They are aggressively soliciting their vendors to provide them with full, rich, industry standardized data including not only application eCat data, but PIES product attribute data, too. They have an aggressive program for their Internet Parts Ordering (IPO) initiative — dubbed CARQUEST Vision. This will enable them to reduce what a CARQUEST internal study revealed is a 10-step procedure, to a single click. At a recent industry event, one CARQUEST executive revealed that their business currently is doing $45 million in special order volume annually. It is their belief that by initiating CARQUEST Vision, they will be able to increase that number substantially. That will translate not only into increased sales, but into better fill rates. And that will reduce the incidence of CARQUEST having to say “no” to technicians who call looking for parts.

Maybe the lesson the rest of us in the aftermarket can learn from Worldpac is the importance of focusing on the technician, getting the parts right and using technology to connect down market.

I repeatedly have referenced an article by James Guyette, entitled “First Call – Dead Last” in the June 2004 issue of this magazine, both in these pages and in speeches that I have made. That article exposes two critical failings of the traditional aftermarket in providing parts to independent shops: 1) the “over-consolidation” that has made many traditional domestic aftermarket parts nearly unacceptable to independent techs; and 2) that the timeliness and accuracy of our data is completely out of step with what the tech needs and expects. If we are to stop the steady purchase migration of independent repair shops away from aftermarket outlets to OE dealerships, EVERYONE in this aftermarket must do something about it. Worldpac has excelled by focusing on the technician, getting the parts right and creating a technological link with the “revenue wellhead.” I think that is the formula that other aftermarket survivors must also follow.

There will be those who argue that the CARQUEST acquisition of Worldpac is in conflict with their current model of selling through independent jobbing stores. Those people are shortsighted. Any jobber who examines the amount of business that they are doing with the true import specialist will quickly see that there is no conflict. Besides, the capabilities that Worldpac will bring to CARQUEST in the form of sourcing import parts and technological links with service technicians will make CARQUEST a better supplier to independent jobbers.

Time will be the ultimate judge as to whether or not this acquisition was brilliant or foolhardy; but from where I sit, the light is shining bright for CARQUEST.

 

Bob Moore is president of Bob Moore & Partners, a consulting firm that specializes in the automotive aftermarket. Moore can be reached at bobmoorepartners@earthlink.net.

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