O'Reilly Auto Parts 2015 Annual Report Download - page 18

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FORM 10-K
Marketing to the Independently Owned Parts Store:
We also sell automotive products directly to independently owned parts stores ("jobber stores") in certain market areas. These jobber
stores are generally located in areas not directly serviced by an O'Reilly store. We administer a proprietary, dedicated and distinct
marketing program specifically targeted to jobber stores called Parts City Auto Parts that currently provides automotive products to
approximately 190 jobber stores, with total annual sales of approximately $60 million. As a participant in this program, a jobber store,
which meets certain financial and operational standards, is permitted to indicate its Parts City Auto Parts membership through the display
of a trademarked logo owned by us. In return for a commitment to purchase automotive products from us, we provide computer software
for business management, competitive pricing, advertising, marketing and sales assistance to Parts City Auto Parts affiliate stores.
Pricing
We believe that competitive pricing is essential to successfully operate in the automotive aftermarket business. Product pricing is generally
established to compete with the pricing of competitors in the market area served by each store. Most products that we sell are priced
based upon a combination of internal gross margin targets and competitive reviews, with additional savings offered on some items through
special promotional pricing and volume discounts. Consistent with our low price guarantee, each of our stores will match any verifiable
price on any in-stock product of the same or comparable quality offered by our competitors in the same market area.
Customer Payments and Returns Policy
Our stores accept cash, checks, debit and credit cards. We also grant credit to many professional service provider customers who meet
our pre-established credit requirements. Some of the factors considered in our pre-established credit requirements include customer
creditworthiness, past transaction history with the customer, current economic and industry trends and changes in customer payment
terms. No customer accounted for greater than one percent of our consolidated net sales, nor do we have any dependence on any single
customer.
We accept product returns for new products, core products and warranty/defective products.
INDUSTRY ENVIRONMENT
The automotive aftermarket industry includes all products and services purchased for light and heavy-duty vehicles after the original
sale. The total size of the automotive aftermarket is estimated to be approximately $256 billion, according to The Auto Care Association.
This market is made up of four segments: labor share of professional service provider sales, auto parts share of professional service
provider sales, DIY sales and tire sales. O'Reilly's addressable market within this industry is approximately $146 billion, which includes
the auto parts share of professional service provider sales and DIY sales. We do not sell tires or perform for-fee automotive repairs or
installations.
Competition
The sale of automotive aftermarket items is highly competitive in many areas, including customer service, product availability, store
location, brand recognition and price. We compete in both the DIY and professional service provider portions of the automotive aftermarket
and are one of the largest specialty retailers within that market. We compete primarily with
• national retail and wholesale automotive parts chains (such as AutoZone, Inc., Advance Auto Parts, CARQUEST, NAPA and
the Pep Boys - Manny, Moe and Jack, Inc.);
• regional retail and wholesale automotive parts chains;
• wholesalers or jobber stores (some of which are associated with national automotive parts distributors or associations such as
NAPA, CARQUEST, Bumper to Bumper and Auto Value);
• automobile dealers; and
• mass merchandisers that carry automotive replacement parts, maintenance items and accessories (such as Wal-Mart Stores, Inc.).
We compete on the basis of customer service, which includes merchandise selection and availability, technical proficiency and helpfulness
of store personnel, price, store layout and convenient and accessible store locations. Our dual market strategy requires significant capital,
such as the capital expenditures required for our distribution and store networks and working capital needed to maintain inventory levels
necessary for providing products to both the DIY and professional service provider portions of the automotive aftermarket.