The Engine That Drives A Winning Team

Discount Store News, Dec 8, 1997 by Richard Halverson

Richard Halverson

The Power Merchants: Shawn McGhee, AutoZone

From day one, the core customer of AutoZone has been the owner of a 10-year old pickup or car who can't afford to pay someone to maintain his vehicle.

AutoZone's DIY customers care little for brand name cachet so long as the parts they need are cheap and durable.

Those are the parameters of AutoZone's merchandising philosophy, which has led what is now the nation's largest auto parts chain to develop, along with vendors, private label parts with the durability of brand name parts but without their hefty price tags.

As AutoZone shifted into the commercial installer market, selling to professional mechanics and repair garages, that philosophy stood the chain in good stead.

In just 18 months, AutoZone has built the commercial market into a profitable business, selling those same private label parts, with one exception: Bosch batteries, available only through commercial repair shops.

Analysts estimate commercial customers provided $250 million to $300 million of its $2.7 billion in sales for its fiscal year ended August 31.

Looking ahead to the day when AutoZone saturates the U.S. market with 4,000 to 5,000 stores - up from an expected 2,100 by the end of fiscal year 1998 - the chain is eyeing the Mexican market. It has founded a subsidiary, AutoZone de Mexico, as the first step toward opening stores in a dream market, one in which owners seldom junk their cars and where many owners perform much of the repair work to keep them running.

Known as the upstart chain that brought discounting to the automotive aftermarket, AutoZone leaves merchandising to a youthful executive, Shawn McGhee, age 34, executive vp for merchandising - customer satisfaction.

All executive titles at AutoZone include the 'customer satisfaction' tag to remind them of their chief responsibility.

McGhee has been at AutoZone for nine years and before that worked in operations at Chief Auto, Dallas, and at FedMart, a mass merchant based in Southern California.

McGhee likes to get his hands dirty under the hood and does his own maintenance on several vehicles, including a Chevy pickup.

As a sideline, McGhee owns a ranch in Oklahoma, where he raises Black Limousine cattle and black-faced Suffolk Sheep. 'There's plenty of equipment to repair,' he said.

AutoZone announced two years ago that it is exploring international opportunities.

The company is starting early on international expansion before it runs out of room for new stores in the United States.

Now operating more than 1,732 stores, AutoZone expects to open 350 more by the end of August 1998 to end the year with more than 2,100, or about half of the 4,000 to 5,000 store potential for the United States.

And when the potential is reached, AutoZone will be a national chain, operating in every state, McGhee said. It entered five new states during fiscal year 1997, including California, Virginia and Maryland.

With such a range of regional markets - from the frozen rigors of Alaska to the scorching deserts of Arizona, AutoZone must deal with micro markets in its merchandising.

The chain looks at each store and 'tailors the store mix based on vehicles that live around it,' McGhee said.

A Flexigram system of planogramming allows each store to be merchandised based on Polk vehicle registrations.

AutoZone also includes parts failure rates into its merchandising formula, to the extent that they're available. But Detroit doesn't always want to disclose failure rates, McGhee said.

Store sku counts range from 17,000 to 21,000, depending on what the Flexigram system dictates.

In addition, 55,000 more skus are available for both retail and commercial customers through overnight delivery.

AutoZone's average store size is 6,600 sq. ft., but the chain builds stores that range from 5,400 sq. ft. to 8,500 sq. ft., depending on the market.

McGhee said the aftermarket will have to contend with parts proliferation for the indefinite future, but better efficiencies will allow AutoZone to accommodate additional parts without increasing store size.

When venturing into the commercial market, AutoZone had to beef up its skus for parts such as auto conditioning compressors and accumulators because federal regulation has shifted the Freon air-conditioning market to installed from DIY. But other than air-conditioning parts, AutoZone hasn't had to increase any other categories for the commercial market.

The company worked with Johnson Controls and Bosch, which previously had no American presence, to develop a Bosch battery for the commercial market. And AutoZone is also working on other parts that won't be available at retail, but McGhee declined to disclose what they are for competitive reasons.

'[AutoZone] isn't hung up on brand names,' McGhee said. 'We want the best quality product at the lowest possible cost.'

To get better quality items, AutoZone often works with vendors to re-engineer original equipment products to its own specifications.

As an example of re-engineering, McGhee cited the development of AutoZone's Duralast Gold line of starters and alternators, developed because of high failure rates on GM parts. It recently expanded the line to include Ford alternators.