Napa Auto Parts 2006 Annual Report Download - page 9

2006 Performance
 e Automotive Parts Group posted a 3% increase in revenue in
2006 and this follows two strong years in 2004 and 2005. We are
encouraged by this group’s ability to generate positive sales growth
over these periods.  is is especially true for 2006, as demand in
the automotive aftermarket was impacted by rising gas prices and
its eff ect on miles driven and consumer spending. Our sales growth
initiatives, combined with eff ective cost management, support our
eff orts to consistently improve our operating performance.
Automotive Aftermarket
 e automotive aftermarket industry is very large and continues
to grow.  e Wholesale or Do-it-for-Me (DIFM) market represents
professional service and repair facilities and accounts for an estimated
75% of the industry.  e Retail market represents the Do-it-Yourself
(DIY) customer and is approximately 25% of the industry.  e
Automotive group works in concert with our NAPA AUTO PARTS
stores to continually grow our business with both wholesale and
retail customers.
NAPA AutoCare, Major Accounts & IBS
 e NAPA business model was originally founded upon serving
the wholesale market. Over the years, we have developed a signifi cant
number of program off erings, which we believe best meet the demands
of our wholesale customers. Examples include NAPA AutoCare,
NAPA Collision Centers and NAPA Truck Service Center programs,
which provide business tools and support to one of the nation’s largest
independent automotive service and repair networks.  e NAPA
Major Accounts Program assists the NAPA AUTO PARTS stores
in securing preferred vendor agreements with nationally recognized
companies. Integrated Business Solutions (IBS) is a sophisticated
inventory management service that eff ectively handles the inventory
procurement and stocking requirements for larger wholesale customers.
Niche Markets
We are also focused on the specialty markets component of our
wholesale business and we continue to invest in trained personnel,
tailored inventory and aggressive promotion. Niche markets such as
heavy duty, paint, body & equipment, farm and marine, and tools &
equipment off er us many growth opportunities. In September 2006,
we announced plans to open a new heavy vehicles division in the U.S.
dedicated to replacement parts for heavy duty trucks and trailers.  is
division follows our Canadian heavy duty business template and, over
the next several years, we expect to achieve a much greater presence
in this market.
Stores
To eff ectively compete in the retail market, we are focused on initiatives
such as improved NAPA AUTO PARTS store merchandising and
in-store service and facility upgrades. Ensuring eff ective and consistent
planograms, competitive retail pricing, convenient retail hours, well-
trained personnel and store upgrades and resets are a few examples
of the ways we are growing our retail business.  ese initiatives create
an inviting shopping experience for the DIY customer and support
our complete and dominant product off ering. Our proprietary store
inventory management system, Marketplace Inventory Classifi cation
(MIC), provides the data necessary to accurately align each store’s
inventory with its specifi c market.
New Distribution
We continue to focus on new distribution with a strategy of position-
ing our NAPA AUTO PARTS store base in market areas where we
anticipate signifi cant growth opportunities. In 2006, we added 64 net
new stores across the U.S. and believe we have tremendous additional
opportunities. During 2007, we plan to further expand our footprint
with more new Company-owned and independently owned stores.
Technology
Technology and connectivity remain essential elements in our customer
service strategy.  e rollout of new and improved technology has
better enabled NAPA and NAPA AUTO PARTS stores to conduct
business with both retail and wholesale customers.  e NAPA Wide
Area Network (WAN) connects thousands of stores and provides
business-building tools for both the NAPA stores and their commercial
accounts. In addition, NAPA TRACS, a leading shop management
system, provides repair estimating, management and technical solu-
tions for any wholesale customer. It also contains electronic ordering,
eProcurement and 24/7 access to the on-line NAPA PartsPRO
catalog, which has over 320,000 parts and product images, among
other information. Other technological applications at NAPA include
NAPAONLINE.com, used primarily by our retail customers, and
NAPA PROLink and NAPA WebConnect CRM, used by our
wholesale customers. Finally, through Ibiz, we provide NAPA
cataloging, eProcurement and pricing to users of third party Shop
Management Systems (SMS), further extending our connectivity
to repair facilities.
NAPA Brand
 e NAPA brand is widely recognized by North American consumers
and professional technicians and its continued strength gives us a
competitive advantage in the industry. Our national and local advertis-
ing is designed to reinforce this awareness of NAPA and build on the
benefi ts of quality parts, quality service and knowledgeable people.
 e NAPA advertising program delivers high visibility exposure
through national television, radio, print and internet advertising,
targeted sponsorships and high-quality local advertising materials.
2007 Outlook
In 2007, we see opportunities for additional growth in the Automo-
tive Parts Group. Our sales initiatives, combined with initiatives to
control costs, are in place to improve this group’s operating perfor-
mance and further strengthen our leadership position in the industry.
In addition, we expect the economic factors noted earlier, and which
impacted our business to some degree in 2006, to become favorable in
the year ahead.  is bodes well for companies with sound growth plans
such as ours. 2006 marked a good year in the parts business, and we are
optimistic about generating more positive results in 2007.
Automotive
Parts Group
3%increaSeinrevenueS
napaautocare&maJoraccountexpanSion
integrateDBuSineSSSolutionS(iBS)growth
nichemarketSexpanSion,incluDing
newheavyvehiclepartSgroup
StoremerchanDiSinganDin-Store
ServiceanDfacilityupgraDeS
newDiStriBution
progreSSintechnologyanDconnectivity
2006 Highlights
7