Advance Auto Parts 2007 Annual Report Download - page 16

ADVANCE AUTO PARTS 2007 ANNUAL REPORT
COST STRUCTURE: INCREASING RETURNS PER MEMBER
The economy over the past two years has been very challenging to the industry’s sales. Rising gasoline
prices, interest rates and high heating costs combined to impact our customers’ ability to make their
usual auto maintenance purchases. At the same time, Advance’s cost of doing business prior to 2007
had not declined in response to these economic factors. In fact, certain costs such as new store
investments, selling costs and advertising continued to rise. But like a good mechanic, we were able
to get in there, troubleshoot and begin to make adjustments to keep our machine running smoothly.
In 2007, Advance took a hard look at the cost of doing business
and made some significant decisions to improve our cost
structure. As part of our ongoing review, we have simplified
and improved the efficiency of our store sales floor, which
has resulted in fewer tasks that our Team Members need to
perform so they can increase their focus on customer service
and driving sales. The simplifications to our sales floor, include
reducing the number of plan-o-grams, weekly price
changes, and monthly point-of-purchase signage and
end cap rotations in stores. In addition, we reviewed and rationalized all sales floor SKUs
to remove less productive inventory.
With our parts-focused initiatives, we see our parts categories growing; however,
we continue to see softness in our more highly discretionary
categories. We believe our focus on parts availability, a more
productive and effective advertising program, increasing parts
knowledge in our stores and other initiatives will drive the DIY
business more positively, but there is still more we can do as a
company to offset soft sales.
In order to build a leaner cost structure, we eliminated advertising
expenditures that we determined were not productive. We continue to test
and measure other advertising to make sure we are delivering a return on our
investment. We have begun implementation of our 2008 media plan, which shifts
expenditures away from print toward more electronic media such as television, radio
and the Internet. In addition, we are increasing the portion of our total advertising and
marketing spending that is aimed at our Hispanic customers. In partnership with our new
ad agency, The Richards Group, we believe we can achieve a greater return on our marketing
investment in 2008.
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TINA DAVENPORT,
STORE MANAGER