AutoZone Inc.

founded: 1979 as auto shack

Contact Information:

headquarters: 123 s. front st.
memphis, tn 38103 phone: (901)495-7185 fax: (901)495-8316 email: [email protected] url: http://www.autozone.com

OVERVIEW

A Fortune 500 company with annual sales nearing the $5 billion mark, AutoZone Inc. is the largest retailer of automobile and light truck parts in the United States.

COMPANY FINANCES

After reaching $1 billion in the early 1990s, sales at AutoZone grew steadily into the early 2000s. In 2001, the firm posted record revenues of $4.8 billion. Profits also climbed consistently throughout the 1990s, reaching their peak of $367.6 million in 2000. Although profits declined to $175.5 million in 2001, AutoZone's stock reached an all-time high of $49.20 per share; the low that year was $21.00 per share. Profits in the first quarter of 2002 grew 65 percent.

ANALYSTS' OPINIONS

The Standard & Poor's 500 listed AutoZone stock as the second best performer of 2001; shares had increased in value by 180 percent that year. According to a December 2001 article in CBS.MarketWatch.com, AutoZone's success was due, at least in part, to the sluggish North American economy of the early 2000s. "AutoZone is among the handful of companies that actually stand to benefit from a weak economy, with the theory being that drivers tend to hold on to and fix up their cars rather than replace them, plus they tend to find it cheaper to drive than fly to some destinations."

Along with the favorable market conditions created by a sluggish economy, many analysts pointed to the firm's decision to slow its new store openings to instead focus on the development of existing stores as a key reason for increased profits in 2002. Marketing efforts spear-headed by new CEO Steve Odland were also credited for boosting AutoZone's performance.

HISTORY

In 1979, Joseph R. Hyde III opened a store called Auto Shack in Forrest City, Arkansas, to offer inexpensive auto parts to the general public. He organized his new venture as a division of Malone & Hyde, Inc., a family-owned business. Within a year, Hyde had opened seven more stores in Arkansas and Tennessee, as well as a warehouse in Memphis. The chain continued to grow quickly with the addition of another 23 stores in 1980. By then, Auto Shack stores existed in a total of seven states. The Memphis warehouse was expanded in 1982 to accommodate the rapid expansion. Two years later, Auto Shack stores in operation totaled 200 and spanned 13 states. Hyde sold a majority stake in Auto Shack to investment banker Kohlberg Kravis Roberts & Co. (KKR). Another 68 units opened in 1985.

In 1986, the firm created a lifetime warranty program for 42,000 of the parts it sold. To keep pace with growing demand, Auto Shack constructed a warehouse in South Carolina. The firm also created an electronic catalog to help its employees find parts for specific car makes and models more quickly. In 1987, Hyde sold all portions of the family business except its fastest-growing division: Auto Shack. Operating as an independent business for the first time, Auto Shack changed its company name, and the name of its stores, to AutoZone. The following year, AutoZone developed its own auto parts brand, Duralast. Sales exceeded $500 million in 1989. By then, AutoZone had become the third-largest U.S. retailer of auto parts. Its 500th store opened in Hobbs, New Mexico, that year.

The firm listed its shares publicly for the firm time in April of 1991. KKR kept a 68 percent share of Auto-Zone, while AutoZone managers retained another 16 percent, and former managers held on to 6 percent. Roughly 10 percent was left for other investors. Net income grew 89 percent that year to $44 million on sales of $818 million. In 1992, sales exceeded $1 billion for the first time. The firm's efforts, in 1994, to acquire 25 stores owned by Nationwise Automotive Inc. were thwarted by a higher bid from Western Auto Supply, a division of Sears, Roebuck & Co. Despite this setback, AutoZone continued to look for expansion opportunities. Nearly 1,000 stores spanned 25 states by 1995. New product releases that same year included Duralast batteries, which eventually became the top selling automotive batteries in the United States.

AutoZone diversified in 1996 with the $56.8 million purchase of Alldata Corp., a developer of software that offers diagnosis and repair information regarding various automotive problems. The firm also broadened its customer base from individual consumers to include businesses like automotive service stations. The following year, John Adams took over as CEO and president, marking the first time ever AutoZone was headed by someone other than a member of the Hyde family. Intense growth in 1998 included the acquisition of two automotive parts chains, Auto Palace and Chief Auto Parts Inc., as well as the purchase of 100 units from Pep-Boys. These newly acquired units, 800 in total, were transformed into AutoZone stores. The firm also expanded internationally for the first time, opening a store in Nuevo Lardeo, Mexico.

FAST FACTS: About AutoZone Inc.

Ownership: AutoZone Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: AZO

Officers: Steve Odland, Chmn., Pres., and CEO, 43; Michael G. Archbold, SVP and CFO, 41; Bruce G. Clark, SVP and CIO; Anthony D. Rose, SVP Advertising

Employees: 44,600

Principal Subsidiary Companies: AutoZone Inc. owns and operates 3,000 retail stores across the United States, as well as 21 stores in Mexico.

Chief Competitors: AutoZone Inc. competes with other auto parts retailers, such as Pep-Boys and Genuine Parts. Additional rivals include larger superstore chains, like Wal-Mart, that operate extensive auto parts departments.

Six more new stores were opened in Mexico in 1999. That year, the Fortune 500 added AutoZone to its ranks. The heavy debt load AutoZone incurred from its rapid growth in 1998 resulted in a decreased profit margin (5.9 percent compared to a high of 7.7 percent in the mid-1990s). Stock prices began to decline, leaving the firm somewhat vulnerable to takeover. When ESL Investments, which purchased its initial stake in AutoZone in 1997, upped its share to 16.27 percent, it became the largest shareholder of AutoZone. As a result, AutoZone's board of directors put in place a "poison pill," which safeguarded company from takeover by automatically weakening the stake of any shareholder who acquired more than 15 percent of the firm.

STRATEGY

When Hyde launched AutoZone, he focused on offering low prices and high quality customer service, business principals that remain at the core of the firm's strategy. Throughout the 1980s and 1990s, developments in technology were used in an effort to continually improve customer service. For example, AutoZone began making use of an electronic catalog in the late 1980s to help employees more quickly and accurately determine which parts were needed for specific vehicles. Eventually, customer warranty information was added to this database. A satellite system, put in place in 1994, allowed employees from one store to set aside merchandise at a nearby stores to ensure that customers could purchase the parts they needed even if they were out of stock at a certain store. The launch of Autozone.com in 1996 allowed AutoZone to sell to its parts online to both individual consumers and to the new business clients it began targeting that year.

The strategy of rapid growth via acquisition also served the company well. Throughout the 1980s and 1990s, AutoZone purchased large automotive parts chains, quite often converting them into AutoZone stores to build upon AutoZone name recognition. Acquiring existing stores was not only often cheaper than building brand new ones, but it also allowed AutoZone access to a base of existing customers. This expansion strategy was changed, however, in the early 2000s, as AutoZone began to focus more closely on developing its existing stores. After closing 35 underperforming stores in 2001, CEO Steve Odland upped performance standards for the roughly 3,000 remaining stores. These efforts to boost profitability also included the launch of a marketing campaign centering on the firm's new tag line: "Get in the Zone: AutoZone." The reason for these changes, according to AutoZone, was the desire to increase its rate of return for investors to 15 percent.

PRODUCTS

AutoZone sells car and light truck parts such as carburetors, batteries, alternators, spark plugs, struts, lights, and filters. Vehicle maintenance products include antifreeze; oil; brake, power steering, and transmission fluids; paint; tools; and windshield wipers. The firm also sells accessories such as vehicle sound systems. Auto-Zone began to add more accessory products, such as sunglasses and decorator floor mats and seat coverings, to its stores in 2001.

CORPORATE CITIZENSHIP

AutoZone supports a variety of non-profit causes—including literacy tutoring, job training, community enrichment, and human services programs—in the communities in which it operates. The AutoZone Matching Gift Program also allows employees to request that Auto-Zone match their charitable contributions to various causes.

GLOBAL PRESENCE

While the majority of AutoZone's stores are located in the United States, the firm does also operate 21 units in Mexico. Because drivers in Mexico tend to own older cars, which are more likely to need replacement parts than the new cars favored by many drivers in the United States, AutoZone plans to increase Mexican operations rapidly over the next several years.

AUTOZONE FOUNDER LEARNS TRICK OF THE TRADE FROM WAL-MART

AutoZone founder Joseph Hyde sat on the board of directors for Wal-Mart for several years prior to opening his first auto parts store. Hyde modeled his initial corporate strategy, which focused on low prices and high quality customer service, after that of Wal-Mart.

CHRONOLOGY: Key Dates for AutoZone Inc.

1979:

AutoZone is founded as Auto Shack by Joseph R. Hyde III

1986:

AutoZone begins offering a lifetime warranty on thousands of its parts

1989:

Sales exceed $500 million and the 500th store opens

1991:

AutoZone conducts its initial public offering

1997:

John Adams becomes CEO and President (the first time a non-family member heads the company)

1999:

AutoZone is added to the Fortune 500

2001:

Steve Odland succeeds Adams as chairman and CEO

EMPLOYMENT

AutoZone employees are known as AutoZoners. To foster high-quality customer service, AutoZone recognizes employees who "go the extra mile" for customers with the Extra Miler Award.

SOURCES OF INFORMATION

Bibliography

"autozone inc." notable corporate chronologies. farmington hills, mi: gale research, 1999.

autozone inc. home page, 2002. available at http://www.auto-zone.com.

"autozone profit zooms 65 percent." cbs.marketwatch.com, 5 december 2001. available at http://www.marketwatch.com.

bechard, theresa. "store focus, marketing helping autozone see higher profits." memphis business journal, 28 september 2001, 34.

farzad, roben. "pass me that spark-plug wrench, clem." smartmoney.com, 7 december 2001. available at http://biz.yahoo.com/smart.

For an annual report:

on the internet at: http://media.corporate-ir.net/media_files/nys/azo/reports/2001ar/annual.html

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. autozone inc.'s primary sic is:

5531 auto and home supply stores

also investigate companies by their north american industry classification system codes, also known as naics codes. auto-zone inc.'s primary naics code is:

441310 automotive parts and accessories stores