Pleasant dreams and bitter nightmares

Jan. 1, 2020
Consolidation and further separation of WDs from customers are growing concerns in the industry.

You name it, WDs probably think about it these days. So what exactly is keeping today's WDs up at night?

Between dealerships sneaking into the aftermarket and taking away business from independent service providers and jobber pricing, warehouse distributors across the country have a lot on their minds nowadays.

And that's not even starting to address returns, delivery times, carrying overseas products and consolidation — all thoughts that can keep WDs up at night. While some distributors have a better grasp on their business than others, they face the same problems their counterparts in Maine, Arizona, Mississippi and Oregon do. Some just handle the pressure better than others.

Consolidation of distribution centers, as well as their jobber clients, is a boogeyman for some WDs, but the Tooth Fairy for others. It may seem like big box and mega-parts stores have replaced the smaller, independent parts distributors that once delivered automotive parts to shops across the nation, but the trend toward consolidation might ultimately hurt the industry, say many experts. However, consolidation might have a tendency to help the smaller warehouse distributors across the nation survive and thrive, says Floyd Hershey, president of Hershey Automotive Inc. in Bel Air, Md.

"Consolidation isn't always a bad thing," Hershey says. "I just had a major competitor get bought out by Parts Depot, but you just don't have the hands-on management at those big stores. I'm able to provide better, quicker customer service. And, if a customer has a problem, they know they can talk directly to me and I will solve it."

Others note that consolidation is going to continue to happen no matter what WDs do or want. Dale Larson, of UNESCO Warehouse, Inc., in Fargo, N.D., says consolidation is going to continue.

"The independent WDs are becoming so rare, they're precious," says Larson, who serves as the chairman of UNESCO's board of directors. "But if they can provide technical information to their customers and go to market with solutions that solve the end customer's needs, they'll be able to make it."

Consolidation is not the only competition WDs are facing on a daily basis. Somewhat tied with consolidation is the growing presence of retailers in the wholesale segment. AutoZone, Advance Auto Parts and other companies are shifting part of their portfolios to the commercial side as the do-it-yourselfer population wanes. Kenneth Bertucci, president of Tony's Auto Parts, Inc. in Marrero, La., says big-box stores are becoming a bigger obstacle for WDs to overcome as well.

But as for the automotive retail locations, Jim Olson, vice president and general manager of Full Service Auto Parts in San Antonio, Texas, says even those other locations are not immune from consolidation. But there is a shrinking market and increasing competition, meaning "somebody's going to cry uncle."

"Again, there's more vehicles out there every day. They're making vehicles better, so that kind of offsets the growth in parts sales," he notes. "But yet you are continually seeing the retailers — O'Reilly (Automotive Inc.), Advance, AutoZone — opening up without that much growth in aftermarket business. Then you see their certain segment of their customer base is shrinking, the do-it-yourselfers, and at the same time, I think a lot of the installers are going to go by the wayside."

Serving their customers

Despite the concerns about retailers and big box stores, as well as mixed views on consolidation, how to handle, keep and recruit more customers, the factors associated with all of these problems might take up more of WDs' thoughts. Returns, parts proliferation, e-commerce and parts from low-cost countries (LCCs) all are factors WDs must deal with.

Let's first look at parts from LCCs. Recalls have been hot topics in the news of late, including here in Aftermarket Business. But the aftermarket has not responded to the recalls in other sectors when it comes to hard parts.

"On average, I'm selling the same amount of overseas parts as I was 30 years ago," Bertucci says. "Most of the people we buy from have product lines that are made both in the United States and overseas, so I don't really have plans to increase my inventory of overseas parts in the near future."

Olson says he carries brakes, filters and anything solid metal that is made in LCCs, but his buying group and its suppliers are good about watching what companies they deal with. For example, clutches are parts they shy away from buying from overseas manufacturers. Hershey also says brake rotors made in LCCs are popular at his two-step operation.

"Matter of fact, AIMCO just told me they're closing their American factories this year; everything's going overseas," he offers. "That's my biggest line (of brakes). We're not having an issue about overseas parts. It's certainly more of a price question. As long as you're selling something and you don't have a warranty problem with it, the customers don't care."

However, he adds that pricing always is a problem to manage, as it's difficult to figure out what to price a part. Bertucci reports that price updates are coming faster than they can keep up with, and he is unsure if there is a solution to the problem. But his counterpart, Larson with UNESCO, says he might have an answer.

"I believe that some people who are primarily boxed goods distributors build their marketing on aggressive pricing, while the independent boxed goods distributor builds his marketing on relationships and on bringing training to the technician, to the customer," Larson explains. "You can solve this particular problem by evaluating the possibility of reducing pricing or by becoming aggressive. Some product lines give you no choice."

He goes on to say they sometimes establish their own price list going up from cost. With high volume numbers, gross can be lower, but it has to be regained somewhere else, "preferably with a slower moving product."

This relates to how price affects what brands are carried on a WD's shelves. Olson says it's important to carry a variety of brands to keep all of Full Service's tech customers happy. For example, there are cases where the owner of a 5-year-old vehicle wants quality parts, while the owner of a 20-year-old vehicle wants parts based on price.

"You can't just have one brand. You have to have value lines. That's just the nature of the customer and his customers," he says.

Getting the parts there

And in addition to the price and brand debate that factors into delivery costs, WDs, like the rest of the nation, face rising gas prices. "(Gas prices have) taken a big toll on our services," Bertucci says. "I wish we could get around them, but we can't really do anything about it because we have so much chain competition."

And no one wants to add line item surcharges to their bills for delivery. Olson says his business has implemented a formula that for every so many cents the price of gas increases, prices at the store increase only a fraction of a cent. Meanwhile, Hershey Automotive still is running the same delivery cycle.

"(The price of gas) just runs up the cost of business, that's all it's doing," Hershey says. "We've consolidated some routes, and have been paying more attention to gas mileage on the new vehicles we buy (for our delivery fleet)."

On the other hand, Larson has entered discussions with UNESCO's management team to put some hybrid vehicles in the company's delivery fleet. And while he acknowledges that a change like that won't happen overnight, the company has downsized its delivery vehicles to small cars, like the Ford Focus, in an attempt to show customers that UNESCO is considering "green" alternatives.

But no matter what delivery methods are put in place, returns can mess up the process. To combat this, some innovative methods have been implemented at some distributorships. Olson says his facility sells a lot of electronic control modules, and many are returned to the WD flashed.

"We've really had to clamp down on those kinds of components. And if the manufacturer puts a seal on it, we put a seal on it so if the seal is broken, it's yours," he explains. "We just started it and we kind of had to draw a line in the sand. And we're sending a letter out with the part, too, saying, 'Please make sure this is what you need, because if you break the seal, it's yours.'"

He, along with others, say that above means like that, educating the counter staff and technician customers is important.

"By educating the internal people, both counter and sales people, to maximize the effort to get the right application out the first time so we don't handle it twice," will reduce returns, Larson says. "I don't know what else you can do. VIN numbers would eliminate all this. You can't make a mistake with VIN numbers. If this industry would accept the idea, would start using the VIN number, we would not have the potential difficulty we have in competing with our competitor, the car dealer — the car dealer always uses the VIN."

Electronic parts ordering also could help ease returns, as technicians and counter staff can see a picture of the part in most cases, and read an up-to-date description, many WDs report.

Gazing into the crystal ball

With all of these thoughts occupying WDs' time, there still must be time to dream. To dream about successfully running their businesses for several more years, growing their customer bases and managing the growing number of SKUs for the ever-changing car parc. But that isn't to say there still aren't concerns about those dreams.

"My concern is that there will be further attrition and further separation between the independent distribution centers and the larger, controlled distribution centers," Larson states. "And that's going to happen predicated on demographics, both vehicle and human."

Hershey also says that there could be troubling times ahead.

"The traditional WD is probably gonna be in trouble, because the independent jobbers are becoming dinosaurs — they aren't going to be around," he says. "The traditional WD will have to become a multi-stepper and pay closer attention to what he's doing in order to service (customers)."

Olson adds to this point: "It's sort of like anybody else in the industry, the installer or the distributor or the retailer. It's the guy that is the one most willing to change with times, and the one that really watches his business. You really have to watch your business and you have to have a certain amount of intelligence."

And with this all in mind, maybe some WDs will sleep a little sounder tonight.