Eight months ago most of you had not heard of Pay-On-Scan (POS). Eight months from now POS could well be on its way to becoming the new way of doing business in the aftermarket. There are two reasons why. First, AutoZone, the country’s largest automotive retailer and POS instigator, is moving forward as quickly as possible for complete implementation of POS with its vendors. Second, if AutoZone succeeds, it is inevitable other retailers and program groups will follow.
According to Sr. V.P. of Merchandising Brett Easley, who sat down for an exclusive interview with Senior Editor Mike Willins and myself, POS implementation is not an option, alternative or experiment. It is the new way of doing business with AutoZone. In a nutshell, the vendors who want to do business with AutoZone will now own their inventory. In Easley’s words, vendors will focus on “selling through AutoZone instead of to AutoZone.” This is good for AutoZone because it can shift its monies elsewhere instead of being burdened with paying its vendors for merchandise that it may or may not sell.
To meet vendor concerns over terms, AutoZone’s three-way factoring system may assure that suppliers get paid in a timely manner. (See our cover story for details.) The factoring system, which defuses vendors’ reluctance to a large degree, is the result of AutoZone using its clout to negotiate for vendors low-interest deals with banks. How can AutoZone do that? Because it has an investment-grade debt rating. (Incidentally, it was actually a vendor who recommended coupling POS with the factoring program.)
Judging from AutoZone’s acceptance of an “outside” idea, such as factoring, it seems to have been somewhat flexible in its willingness to negotiate POS details. In fact, Easley said AutoZone is discussing POS privately with each vendor because each one has different needs. “I don’t think we have two deals that look the same,” he said. If this is the case –– meaning that vendors are getting what they need from such negotiations –– then maybe POS isn’t as bad as vendors initially thought. (And vendors, please verify or dispute.)
There’s no doubt AutoZone is using its clout to move POS forward, but it can’t force anyone to do anything. Everyone has a choice and, of course, that choice may lead to vendors getting locked out of AutoZone. I can’t really say what AutoZone might do if some of the more prestigious suppliers decide not to play the POS game; however, I will speculate that it is much easier these days for retailers or distributors to shift business to offshore suppliers whose products are becoming more accepted due to increased quality and better warranties. Knowing there are competitive alternatives certainly increases AutoZone’s chances of getting vendors on board. On the other hand, vendors are in the position to demand more from AutoZone when it comes to product merchandising. And let’s not overlook the possibility of AutoZone’s commercial accounts asking AutoZone to own the inventory until the shops install it.
Easley predicts that its one-on-one collaboration with its vendors will lead to improved sales and profitability for both parties. However, a more collaborative effort on the front end might have been less threatening and, perhaps, more constructive. Although we can’t overlook AutoZone’s competitive reasons (among others) for rolling out POS privately, an issue like POS begs for an open forum discussion before implementation. The problem, of course, is that there is no industry mechanism or protocol to handle issues that can potentially alter the industry.
My suggestion is that a team of industry leaders –– from all facets of the aftermarket –– assemble periodically to discuss issues frankly and openly for the sake of collaboration. This executive task force, if you will, would be charged with one thing: put the industry first. Members would study, present and review ideas with no threat of reprisal. Perhaps key associations could take the lead on this; however, if that is not possible, we at Aftermarket Business would like to take a crack at moderating these sessions.
So, who is ready for unfeigned collaboration?
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