Napa Auto Parts 2007 Annual Report Download - page 9

e Automotive Parts Group also includes Balkamp, Inc., a majority-owned
subsidiary that purchases, packages and distributes over 40,000 service and
supply items through the NAPA system. Under the name Rayloc, we operate
four facilities where automotive parts are remanufactured and distributed
through the NAPA system.
is year, our U.S. platform was expanded further with our Heavy Duty
and Import Parts operations. We currently operate one heavy vehicle parts
distribution center under the name Traction and two import parts distribution
centers under the name Altrom.
Outside the U.S., we operate NAPA Canada/UAP Inc., one of Canada’s
leading automotive distributors as well as Canada’s largest independent
heavy vehicle parts distributor. e operating programs and marketing
initiatives utilized in our Canadian operations are fully integrated with our
U.S. NAPA system. We are represented in Mexico by Auto Todo, one of that
country’s largest automotive aftermarket organizations. We are encouraged
by the prospects of continued growth throughout the North American
markets we serve.
2007฀Performance
e Automotive Parts Group posted a 2% increase in revenue in 2007,
consistent with our sales growth in 2006. We remain encouraged by this
group’s ability to generate positive sales growth over these periods, as
demand in the automotive aftermarket has been impacted by macro-
economic trends, including high gas prices and its effect on miles driven
and consumer spending. Ongoing sales growth initiatives, combined with
effective cost management, support our efforts to consistently improve our
operating performance.
Automotive฀Aftermarket
e growing automotive aftermarket industry is currently estimated at
$89 billion. 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.
Wholesale฀Programs
Over the years, NAPA has developed a significant number of program
offerings, 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 each 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. In 2007, the automotive group won several
new and significant supply agreements through this program. Integrated
Business Solutions (IBS) is a sophisticated inventory management service
that effectively handles the inventory procurement and stocking require-
ments for larger wholesale customers, including select AutoCare Centers.
We were successful in securing a number of new IBS contracts during the
year and prospects for continued expansion of this service are promising.
Specialty฀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. Specialized markets such as heavy duty, paint,
body & equipment, farm and marine, tools & equipment and import parts
offer us many growth opportunities. is year, we opened our first distribu-
tion center dedicated to replacement parts for heavy duty trucks and trailers.
In addition, we currently have two distribution centers located in the U.S.,
dedicated to original equipment import parts.
Stores
We continue to position our NAPA AUTO PARTS store base in market
areas where we anticipate significant growth opportunities. We also aim to
create an inviting shopping experience for the DIY customer and support
our complete and dominant product offering. To accomplish this, we are
focused on initiatives such as improved store merchandising, in-store
service and facility upgrades. Ensuring effective and consistent planograms,
competitive retail pricing, convenient retail hours, well-trained personnel
and store upgrades and resets also help drive the growth of our retail busi-
ness. In addition, our proprietary store inventory management system,
Marketplace Inventory Classification (MIC), provides the data necessary
to accurately align each store’s inventory with its specific market.
Technology฀Solutions
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 solutions for any wholesale
customer. It also contains electronic ordering, eProcurement and 24/7
access to the on-line NAPA PartsPRO catalog, which has over 375,000
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.
Operational฀Excellence
e Automotive Parts Group continues to show progress in realizing more
efficient and cost effective operations. Via Operational Excellence, we have
made a number of warehouse productivity enhancements, improved our
customer service and developed even more meaningful criteria for manag-
ing supply chain costs. Ongoing progress in these areas as well as many
others remains an important part of our overall strategy.
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 advertising is designed to rein-
force this awareness of NAPA and build on the benefits 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.
2008฀Outlook
We see opportunities for additional growth in the Automotive Parts Group
in 2008. Although we currently expect the macro economic conditions to
remain much the same again in 2008, our initiatives to grow sales and control
costs are in place to improve this group’s operating performance and further
strengthen our leadership position in the industry.
7
automotive parts group net sales
in billion of dollars
4.48
฀ 03฀฀ 04฀ 05฀ 06฀ 07
4.74
5.01
5.19
5.31