Discount Auto Parts, Inc.

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Discount Auto Parts, Inc.

4900 Frontage Road South
Lakeland, Florida 33801
U.S.A.
(941) 687-9226
Fax: (941) 284-2063

Public Company
Incorporated: 1972
Employees: 3,150
Sales: $307.5 million (1996)
Stock Exchanges: New York
SICs: 5531 Automobile & Home Supply Stores

Discount Auto Parts, Inc. is one of the Southeast’s leading specialty retailers of automotive replacement parts, maintenance items, and accessories for the do-it-yourself customer. At the end of fiscal 1996 (May 28, 1996) the company was operating 314 stores, of which 276 were in Florida, its home base. In the highly-fragmented, $65-billion-a-year automotive market Discount Auto Parts hoped to become for car owners what Home Depot had become for homeowners. Its prices generally were substantially below manufacturers’ suggested retail prices and either at or below those of its competitors. In 1996 the company could boast 20 unbroken years of annual increases in sales and operating income.

Private Company, 1971–92

Discount Auto Parts was founded by Herman Fontaine, his son Denis, a lawyer and one-time judge, and other members of his family in 1971, when they opened an 800-square-foot store in Eloise, Florida. Growth was modest in the company’s first years but more rapid after Denis Fontaine, described in one publication as “hard-charging and charismatic,” succeeded his father as president and chief executive officer in 1978. Sales and income increased every year from 1977, and the company opened an average of 17 stores each year between fiscal years 1977 and 1982. In 1982 the company bought 16 franchised Aid Auto stores.

By 1989 there were 100 Discount Auto Parts stores in Florida. Net sales grew from $90.4 million in fiscal 1990 to $108.8 million in fiscal 1991 and $141.2 million in fiscal 1992. Net income grew from $7.5 million to $8.6 million and $12.2 million in these years, respectively. Discount Auto Parts went public in August 1992, raising $64 million from the sale of common stock, nearly half of which was used to pay down the company’s long-term debt of $63.3 million—nearly twice its equity. The existing shareholders, for the most part members of the Fontaine family, were rewarded with $26 million. Denis Fontaine and his brother Peter continued to control the company, each holding 35 percent of the common stock.

Continued Growth, 1992–93

At the end of fiscal 1992 Discount Auto Parts was operating 139 stores throughout Florida. Each store carried a line of brand-name replacement parts for domestic and imported cars, vans, and light trucks, such as starters, alternators, brake pads, brake shoes, and water pumps, as well as maintenance items and accessories. By March 1993 Discount Auto Parts had become the nation’s 14th-largest supplier in its field to the do-it-yourselfer and the largest in Florida, where it claimed 12 percent of the market. By this time the standard 5,200-square-foot stores were being phased out in favor of “mini-depots” averaging 7,600 square feet, or “depots” three times that size, the first of which opened in Miami in 1991. The entire chain was being supplied by a 150,000-square-foot distribution center in Lakeland, also the site of corporate headquarters. This center was doubled in size by the end of the year.

Discount Auto Parts’ large warehouse enabled it to purchase in bulk at a substantial discount and pass on the savings to its customers. It also drew in customers by offering such services as free testing of electrical parts, free battery charging, free used motor-oil collection, and free use of specialty tools. Customer service was enhanced by the company’s “team” concept of rigorous training for its employees, who were rewarded with a program of promotion from within and a generous benefits package that included profit sharing and, even for part-time workers, tuition reimbursement.

During fiscal 1993 Discount Auto Parts earned $13.6 million in net income on revenues of $176.8 million. From 1989 to 1983 the company had average annual revenue growth of 25.5 percent and average annual income growth of 20.8 percent. It ended the fiscal year with 175 stores and in that calendar year opened its first outlets outside of Florida, in Georgia. In its annual report the company said it had retained all of its district managers and its management team during the last year, 90 percent of its store managers, and 84 percent of its assistant store managers.

Discount Auto Parts in 1994

During fiscal 1994 Discount Auto Parts became the largest Florida-based retailer in state receipts, its net sales advancing to $207.6 million and its net income to $14.3 million. The number of its stores grew to 208, with 18 new ones added in the last quarter of the fiscal year alone. Seventy percent of the outlets now were mini-depots, intended to draw customers from a three-mile radius. The company opened its first store in Alabama and increased the number of its Georgia stores to 12. It also installed a $3-million custom-made point-of-sale computer system to continually track the inventory of parts sold and thereby allow company purchasers to make more accurate ordering decisions. The system automatically calculated the price of sales items and markdowns and also kept track of payroll and employees’ hours.

The typical Discount Auto Parts customer was described at this time as an 18-to-30-year-old male with a household income in the range of $30,000 a year. Customers generally fell into one of three broad categories: basic customers, who changed their own oil and put in new car mats now and then; the chain’s core clientele, who changed batteries, water pumps, and radiator hoses; and a third group, who were described as liking to get under the hood and tear the engine apart.

Team management remained a prime company concern. Each Tuesday and Friday corporate headquarters was left largely vacant as top managers fanned out throughout Florida to visit stores, sometimes without warning. “We go out and see what’s working, what management decisions have gone awry,” Peter Fontaine told a reporter for the Tampa Bay Business Journal “Then we all meet back here and talk about it over coffee and doughnuts on Saturday morning.” During the fiscal year the company spent about $2 million on internal and external training of employees. Denis Fontaine died of cancer in June 1994 and was succeeded as president and chief executive officer by Peter Fontaine.

One of the few negatives for Discount Auto Parts in fiscal 1994 was that its gain in same-store sales fell to four percent after two years of double-digit growth. However, new stores accounted for about $25 million of the $30.8 million in the company’s sales increase. There was a decline of one percent in gross profit margins, which the company attributed chiefly to its policy of offering the lowest everyday price in a market and the lowest sale price on some high-volume items. On the other hand, Discount Auto Parts reduced its selling and administrative costs from 24.5 percent to 24.1 percent of the total, the third straight decline in expenses in this sector.

The 195 mini-depot stores were stocking 12,000 items and the 13 depots 14,500 items. Its own private-labels items, including oil, batteries, belts, hoses, and windshield-washer fluid under the Discount Auto and Power Pak names, accounted for 13 percent of sales. All the stores were being supplied from the Lakeland warehouse on a weekly basis, but not always directly, since about 10 percent of its products were going first to the depots, then to surrounding mini-depots.

Record Revenues and Income, 1995–96

Fiscal 1995 was another record-breaking year for Discount Auto Parts. Net sales rose to $253.7 million and net income to $20.6 million. The company opened its first store in South Carolina and expanded its total number of stores to 248. As the result of a second public offering of common stock in September 1995, the company sold nearly 3.5 million shares at $30 each. Net company proceeds from this sale were used primarily to pay outstanding debts.

During fiscal 1996 Discount Auto Parts had record revenue of $207.5 million and net income of $22.5 million. It ended this period with 66 new stores, bringing the total to 276 in Florida, 32 in Georgia, five in Alabama, and one in South Carolina. The depot stores—18 at the end of February 1996—averaged 13,182 square feet of space and 16,000 items, while the standard size had been totally phased out in favor of mini-depots averaging 5,110 square feet of selling space and holding 13,500 items. The company’s long-term debt was $50.4 million at the end of the fiscal year. Peter Fontaine owned 63 percent of the company’s stock in 1995.

On October 1, 1996, Discount Auto Parts and Q Lube, Inc., a subsidiary of Quaker State Corp., announced they had signed a letter of intent to jointly develop locations that would offer fast lube and automotive maintenance services as well as the retail sale of automotive parts. The fast lube/automotive maintenance centers would be located adjacent to either existing or newly developed Discount Auto Parts stores, with 10 to 20 to be opened by the end of 1997. A week later, Discount Auto Parts announced it would be title sponsor for one of Daytona International Speedway’s premier events, the NASCAR Goody’s Dash Series Discount Auto Parts 200 race, to be contested on February 14, 1997.

Company Perspectives:

We provide our customers with everyday low prices, convenience, an unlimited selection of quality products, and knowledgeable courteous service. We want them to know that we are an active part of their community.

Discount Auto Parts in 1996

At the end of September 1996, the number of Discount Auto Parts stores had reached 336, and the company planned to open 85 to 90 in fiscal 1997, bringing the total to about 400. It was adhering to a strategy of owning the vast majority of its store locations and owned approximately 89 percent of its locations. The company-owned Lakeland distribution center, which was to be doubled in size by the end of fiscal 1998, also housed the company’s headquarters and administrative offices. Almost all stores were within a six-hour drive of this center.

In order to establish and maintain customers for a lifetime, Discount Auto Parts was offering a variety of inducements, including computerized catalogs. Stores were being located on neighborhood sites easily accessible from a number of major roadways and arteries. They were open 364 days a year, typically from 8 A.M. to 9 P.M., with some higher-volume stores offering extended hours. Hard parts available included brake shoes, brake pads, belts, hoses, starters, alternators, batteries, shock absorbers, struts, carburetors, transmission parts, clutches, electronic components, and suspension, chassis, and engine parts; maintenance items such as oil, antifreeze, brake-and power-steering fluids, engine additives, paints, and waxes; and accessories such as floor mats, seat covers, and stereos and speakers. Even complete engines were being offered. Representative manufacturers included General Electric, TRW, AC Delco, Champion, Purulator, Presione, Quaker State, Pennzoil, Valvoline, STP, and Turtle Wax.

Discount Auto Parts said it was following an everyday low-price strategy with prices generally at or below those of its competitors in the market area served by each store. Pricing in depot stores was generally even lower. Special promotional pricing was offered on selected products. The company said that it was achieving cost reductions by volume purchases, efficiencies in its distribution system, and higher productivity at the store level.

One of Discount Auto Parts’ guiding principles was “First build the team, then the team will build the business.” For new employees (“team members”) there was an intensive week-long training and orientation program, to be followed over two years by “Parts Pro” certification and a “Tech 2000” program in order to qualify for promotion. Team members identified as potential store managers were eligible for the “DAP University” five-day training program at company headquarters. All store managers were required to participate in Dale Carnegie training courses. Virtually all full-time employees for more than a year were eligible to buy shares of the company’s stock at a discount and make contributions to its profit-sharing plan.