Pep Boys 2007 Annual Report Download - page 49

BUSINESS STRATEGY
On November 27, 2007, we announced our long-term strategic plan developed by our management
team and approved by the Board of Directors. The cornerstones of Pep Boys’ five-year plan are to
refocus on core automotive merchandise, optimize the Company’s square footage productivity and add
service bay market density through a ‘‘hub and spoke’’ growth model. These initiatives are designed to
drive revenue and profit growth in each of our lines of business—retail (do it yourself and commercial)
and service centers (labor plus installed merchandise and tires).
•Strategic Focus. We are focused on becoming the automotive solutions provider of choice for the
value-oriented consumer and are committed to serving the needs of our communities for safe,
reliable and fun transportation. In a highly competitive marketplace, we strive for operational
excellence in order to provide a differentiated customer experience.
•Core Automotive Merchandise. We have begun to reallocate a larger portion of our inventory
investment to core automotive merchandise, including additional tire inventory, a broader parts
assortment and more car customization accessories. To rebalance our inventory, we launched an
aggressive mark down and sell-through program at the end of the third quarter of fiscal 2007 for
certain non-core and unproductive merchandise.
•Business Development. To further improve financial performance, we are piloting several business
development projects aimed at higher return utilization of the excess sales floor capacity present
in our existing SUPERCENTERS.
•Store Strategy. Our store plans are centered around a ‘‘hub and spoke’’ model, which calls for
adding smaller neighborhood service shops to our existing SUPERCENTER store base in order
to further leverage our existing inventories, distribution network, operations infrastructure and
advertising spend. Such new service facilities could be added through organic growth and local
acquisitions.
•Real Estate. We are progressing with a sale leaseback process for certain existing owned real
estate, to date using such proceeds to reduce overall indebtedness. In addition, on November 27,
2007, we announced the closure of 31 low-return stores located in ancillary markets and locales
with changed shopping patterns.
STORE IMPROVEMENTS
In fiscal 2007, the Company incurred $33,495,000 of its total capital expenditures of $41,953,000 to
maintain and improve its stores. Approximately $16,884,000 of these expenditures were in connection
with the Company’s store remodeling program, which we believe results in better merchandising within
its retail business, promotes cross-selling and improves the overall customer experience. In fiscal 2007,
the Company grand reopened 136 remodeled stores. Our 2008 capital expenditures program is expected
to be similar in size to fiscal 2007. The Company plans to spend these funds on remerchandising and
remodeling our locations to better support our core automotive business and the increased focus on
tires. The funding is expected to come from net cash generated from operating activities and the
Company’s existing line of credit.
PRODUCTS AND SERVICES
Each Pep Boys SUPERCENTER and PEP BOYS EXPRESS store carries a similar product line,
with variations based on the number and type of cars registered in the markets where the store is
located. A full complement of inventory at a typical SUPERCENTER includes an average of
approximately 22,000 items (approximately 20,000 items at a PEP BOYS EXPRESS store). The
Company’s product lines include: tires (not stocked at PEP BOYS EXPRESS stores); batteries; new
and remanufactured parts for domestic and import vehicles; chemicals and maintenance items; fashion,
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