AutoZone places patrons 1st, aims for value, low prices - includes related article on automotive centers

Discount Store News, Dec 6, 1993 by Richard Halverson

"AutoZoners always put customers first.

We know our parts and products.

Our stores look great!

And we've got the best merchandise at the right price."

The pledge above, which AutoZone employees and executives take before meetings--preceded by a company cheer, "Give me an A ... etc." --immediately starts to differentiate the chain from other auto parts operators.

The annual report photos of chairman and chief executive Joseph R. Hyde III and president Peter R. Formanek also sets them apart from other top executives of billion dollar retailers: they're pictured wearing shirts and sweaters, with corporate insignias on their collars. Their photos were black and white (not expensive four-color photos).

Their job titles provide another small insights into the innovative corporate culture that has helped AutoZone generate the best operating profit margin in the automotives aftermarket,

11.5% in 1993. All executive titles at AutoZone include the words "Customer Satisfaction."

Such folksy touches may appear a bit hokey--except to the Wall Street investors who have flocked to its standard since AutoZone went public in 1991.

Sam Walton's cheer, "Give me a W...," comes to mind, along with Wal-Mart's rollicking success. AutoZone enjoyed a 36% gain in operating profit in fiscal year '93 on a 21% sales gain, including a 9% comparable store gain.

AutoZone, founded in 1979, can take credit for two obvious innovations: being first to offer a lifetime warranty on parts and being first to establish an effective Express Parts delivery service that promises overnight delivery of slow-turning parts that stores can't afford to keep on hand.

Another innovation is more subtle: bringing the kind of intense competition seen in the food distribution industry, with its low profit margins, and applying the operating strengths of Wal-Mart to the aftermarket. AutoZone, of course, is the creation of Malone & Hyde, a Memphis Tenn.-based food distributor. Hyde came to the auto parts business from his position as chairman of Malone & Hyde, while Formanek was executive vice president at Mal-one & Hyde for specialty retailing operations in drugs, sporting goods and food.

Other hallmarks of AutoZone's operations also bring to mind the cornerstones of Wal-Mart's success: a corporate culture of thrift; a constant drive to cut out costs of doing business; a willingness to pass along cost custs in the form of lower prices; a determination to be the low-price leader; emphasis on efficient distribution that helps keep inventory levels low; and an early emphasis on expanding into under-served small towns in the South and Southeast.

The similarities are no accident, said John Lawrence, vice president, research, for the Dallas brokerage firm of Eppler, Guerin & Turner, who follows both Wal-Mart and AutoZone. Hyde served on the Wal-Mart board for seven years before founding what was then called Auto Shack, Lawrence said. Hyde brought to the aftermarket new standards of distribution, attention to customer service and a low-cost corporate culture that motivates employees, all strengths he learned through his association with both Wal-Mart and the food industry, where low-cost distribution is the key, Lawrence said.

Hyde forced the aftermarket to adapt to his new, higher standards of competition and customer service, Lawrence said.

To call AutoZone the Wal-Mart of auto parts retailing may be an exaggeration, although Hyde's goal of increasing market share to 25% by the end of the decade from 4% in 1993 should remind competitors that 800-lb. gorillas lurk in other retailing categories besides general merchandise and building supplies. Meeting that projection would put sales at $8 billion by the year 2000, compared to $1.21 billion in the fiscal year that ended in August.

Other key innovations include: moving the parts counter to the front of the store; establishing an everyday low price policy; developing an electronic parts catalog that customers also can look at; and requiring every headquarters staffer to don a uniform and spend one weekend a quarter waiting on customers. "All of our innovations revolve around our company pledge that 'AutoZoners Always Put Customers First,'" Formanek said.

"We don't just pay lip service to customer satisfaction. We live and breath it every day. That's wahy it is a part of everyone's title at AutoZone, including mine."

AutoZone has copied from Wal-Mart, Formanek acknowledged, just as every good retailer has. But AutoZone isn't trying to "become the Wal-Mart of the aftermarket," he said. "We're trying to get so far out in front of our competition that everybody else will try to become the AutoZone of the aftermarket."

AutoZone focuses on the customer who demands low price, along with quality: the low to middle income wage earner who drives a used car and who must fix it himself because he can't afford to pay someone to repair it for him. Along with aiming at DIY customers, AutoZone also pitches to the shade tree mechanic who moonlights by fixing cars for friends or relatives. It operates no service bays and sells no tires, which would require installation bays.