O'Reilly Auto Parts 2010 Annual Report Download - page 18

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Superior Customer Service - We seek to attract new DIY and professional service provider customers and to retain existing customers
by offering superior customer service, the key elements of which are bulleted below:
•superior in-store service through highly-motivated, technically-proficient store personnel (“Professional Parts People”) using an
advanced point-of-sale system;
•an extensive selection and availability of products;
•attractive stores in convenient locations; and
•competitive pricing, supported by a good, better, best product assortment designed to meet all of our customers’ quality and value
preferences.
Technically Proficient Professional Parts People - Our highly proficient Professional Parts People provide us with a significant
competitive advantage, particularly over less specialized retail operators. We require our Professional Parts People to undergo
extensive and ongoing training and to be technically knowledgeable, particularly with respect to hard parts, in order to better serve the
technically-oriented professional service providers with whom they interact on a daily basis. Such technical proficiency also enhances
the customer service we provide to our DIY customers who value the expert assistance provided by our Professional Parts People.
Strategic Distribution Systems - We believe our commitment to a robust, regional DC network provides for superior replenishment
and access to hard-to-find parts and enables us to optimize product availability and inventory levels throughout our store network.
Our inventory management and distribution systems electronically link each of our stores to one or more DCs, providing for efficient
inventory control and management. Our distribution system provides each of our stores with same-day or overnight access to an
average of 118,000 stock keeping units (“SKUs”), many of which are hard to find items not typically stocked by other auto parts
retailers. We believe this timely access to a broad range of products is a key competitive advantage in satisfying customer demand
and generating repeat business.
We currently operate 23 DCs, four of which opened in 2010. As these DCs opened, the surrounding CSK stores were converted to the
O’Reilly systems and began receiving same-day or overnight access to O’Reilly’s broad range of hard part product offerings.
Experienced Management Team - Our management team has demonstrated the consistent ability to successfully execute our business
plan, including the identification and integration of strategic acquisitions. We have experienced eighteen consecutive years of record
revenues and earnings and positive comparable store sales results since becoming a public company in April of 1993. We have a
strong senior management team comprised of 146 professionals who average 18 years of service. In addition, our 260 corporate
managers average 15 years of service and our 349 district managers average 13 years of service.
Growth Strategy
Aggressively Open New Stores - We intend to continue to open new stores to achieve greater penetration in existing markets and to
expand into new, contiguous markets. We plan to open approximately 170 net new stores in 2011, and the sites for these new stores
have been identified. To date, we have not experienced significant difficulties in locating suitable sites for construction of new stores
or identifying suitable acquisition targets for conversion to O'Reilly stores. We typically open new stores either by (i) constructing a
new facility or renovating an existing one on property we purchase or lease and stocking the new store with fixtures and inventory, (ii)
acquiring an independently owned auto parts store, typically by the purchase of substantially all of the inventory and other assets
(other than realty) of such store, or (iii) purchasing multi-store chains. New store sites are strategically located in clusters within
geographic areas that complement our distribution network in order to achieve economies of scale in management, advertising and
distribution. Other key factors we consider in the site selection process include population density and growth patterns, demographic
lifestyle segmentation, age and per capita income, vehicle traffic counts, number and type of existing automotive repair facilities,
competing auto parts stores within a pre-determined radius, and the operational strength of such competitors.
We target both small and large markets for expansion of our store network. While we have faced, and expect to continue to face,
aggressive competition in the more densely populated markets, we believe we have competed effectively, and are well positioned to
continue to compete effectively, in such markets and achieve our goal of continued sales/profit growth within these markets. We also
believe that with our dual market strategy, we are better able to operate stores in less densely populated areas, which would not
otherwise support a national chain store selling primarily to the retail automotive aftermarket. Consequently, we continue to pursue
opening new stores in less densely populated market areas as part of our growth strategy.
Profitable same store sales growth is also an important part of our growth strategy. To achieve improved sales and profitability at
existing O'Reilly stores, we continually strive to improve the service provided to our customers. We believe that while competitive
pricing is an essential component of successful growth in the automotive aftermarket business, it is customer satisfaction, whether of
the DIY consumer or professional service provider, resulting from superior customer service that generates increased sales and
profitability.
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Selectively Pursue Strategic Acquisitions - Although the automotive aftermarket industry is still highly fragmented, we believe the
ability of national retail chains, such as ourselves, to operate more efficiently than smaller independent operators or mass
merchandisers will result in continued industry consolidation. Thus, our intention is to continue to selectively pursue acquisition
targets that will strengthen our position as a leading automotive aftermarket parts supplier.
Continually Enhance Store Design and Location - Our current prototype store design features enhancements such as optimized square
footage, higher ceilings, more convenient interior store layouts, improved in-store signage, brighter lighting, increased parking
availability and dedicated counters to serve professional service providers, each designed to increase sales and operating efficiencies
and enhance customer service. We continually update the location and condition of our store network through systematic renovation
and relocation of our existing stores to enhance store performance. We believe that our ability to consistently achieve growth in same
store sales is due in part to our commitment to maintaining an attractive store network, which is strategically located to best serve our
customers.
Grow Professional Relationships with Professional Service Providers in the Western United States - In order to implement our proven
dual market strategy throughout the acquired CSK store network and grow our share of the professional service provider market in
those areas, we have added four additional DCs to the Western markets since the CSK acquisition. Our strategically located DCs
provide converted CSK stores with same-day or overnight delivery access to an average of 118,000 SKUs and will give these stores an
important tool to provide industry-leading customer service to the professional service provider, as well as the DIY customer. In
addition, our Professional Parts People receive ongoing training on our product lines, customer service and O’Reilly policies and
procedures aimed at building and improving relationships with professional service providers.
Management Structure
Each of our stores is staffed with a store manager and one or more assistant managers, in addition to parts specialists, retail and/or
installer service specialists and other positions required to meet the specific needs of each store. Each of our 349 district managers has
general supervisory responsibility for an average of 10 stores, which provides our stores with the appropriate amount of operational
support.
District managers complete a comprehensive training program to ensure each has a thorough understanding of customer service,
leadership, inventory management and store profitability, as well as all other sales and operational aspects of our business model.
Store managers are also required to complete a structured training program that is specific to their position, including attending a 40-
hour manager development program at the corporate headquarters in Springfield, Missouri. District managers and store managers also
receive continuous training through on-line assignments, field workshops and regional meetings.
We provide financial incentives to our district managers and all store team members through incentive compensation programs.
Under our incentive compensation programs, base salary is augmented by incentive compensation based upon their individual and/or
store’s sales and profitability. In addition, each of our district and store managers participates in the Company’s stock option program.
We believe that our incentive compensation programs significantly increase the motivation and overall performance of our district and
store team members and enhance our ability to attract and retain qualified management and other personnel.
Most of our current senior management, district managers and store managers were promoted to their positions from within the
Company. Our senior management team averages 18 years of service, corporate management team averages 15 years of service and
our district management team has an average length of service of 13 years.
Team Members
As of January 31, 2011, we employed 47,142 total team members (31,070 full-time team members and 16,072 part-time team
members), of whom 39,556 were employed at our stores, 6,053 were employed at our DCs and 1,533 were employed at our corporate
and regional offices. A union represents 51 stores (435 team members) in the Greater Bay Area in California, and has for many years.
In addition, approximately 66 team members who drive over-the-road trucks in two of our DCs have voted in favor of becoming
represented by labor unions; however, no collective bargaining agreements have been negotiated. Except for these team members, our
team members are not represented by labor unions. Our tradition of 54 years has been to treat all of our team members with honesty
and respect and to commit significant resources to instill in them our “Live Green” Culture, which emphasizes the importance of every
team member’s contribution to the success of O’Reilly. This focus on professionalism and fairness has created an industry-leading
team and we consider our relations with our team members to be excellent.
Inflation and Seasonality
We have been successful, in many cases, in reducing the effects of merchandise cost increases principally by taking advantage of
vendor incentive programs, economies of scale resulting from increased volume of purchases and selective forward buying. To the
extent our acquisition cost increases due to base commodity price increases industry-wide, we have typically been able to pass along
FORM 10-K