O'Reilly Auto Parts 2010 Annual Report Download - page 21

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Our stores, on average, carry approximately 22,000 SKUs and average approximately 7,100 total square feet in size. At December 31,
2010, we had a total of approximately 25.3 million square feet in our 3,570 stores. Our stores are served primarily by the nearest DC,
which averages 118,000 SKUs, but also have same-day access to the broad selection of inventory available at one of our 184 Master
Inventory Stores, which on average carry approximately 39,000 SKUs and average approximately 10,000 square feet in size. In
addition to serving DIY and professional service provider customers in their markets, Master Inventory Stores also provide our other
stores within the surrounding area access to a greater selection of SKUs on a same-day basis.
We believe that our stores are ''destination stores'' generating their own traffic rather than relying on traffic created by the presence of
other stores in the immediate vicinity. Consequently, most of our stores are freestanding buildings and prominent end caps situated on
or near major traffic thoroughfares, and offer ample parking, easy customer access and are generally located in close proximity to our
professional service provider customers.
Store Layout - We utilize a computer-assisted ''plan-o-grammed'' store layout system to provide a uniform and consistent merchandise
presentation; however, each store’s hard-parts inventory assortment is customized to meet the specific needs of a particular market
area. Front room merchandise is arranged to provide easy customer access, maximum selling space and to prominently display high-
turnover products and accessories to customers. To ensure the best customer experience possible, we have selectively implemented
bilingual in-store signage based on the demographics in each store’s geographic area. Aisle displays and end caps are used to feature
high-demand or seasonal merchandise, new items and advertised specials.
Store Automation - To enhance store-level operations, customer service and reliability, we use Linux servers and IBM I-Series
computer systems in our stores. These systems are linked with the I-Series computers located in each of our DCs. Our point-of-sale
terminals provide immediate access to our electronic catalog to graphically display parts and pricing information by make, model and
year of vehicle and use bar code scanning technology to price our merchandise. This system speeds transaction times, reduces the
customer’s checkout time, ensures accuracy and provides enhanced customer service. Moreover, our store automation systems
capture detailed sales information which assists in store management, strategic planning, inventory control and distribution efficiency.
New Store Site Selection - In selecting sites for new stores, we seek to strategically locate store sites in clusters within geographic
areas in order to achieve economies of scale in management, advertising and distribution. Other key factors we consider in the site
selection process are bulleted below:
• population density;
• demographics including age, ethnicity and per capita income;
• market economic strength, retail draw and growth patterns;
• number of registered vehicles;
• the number, type and sales potential of existing automotive repair facilities;
• the number of auto parts stores and other competitors within a predetermined radius and the operational strength of such
competitors; and
• physical location, size, economics and presentation of the site.
When entering new, more densely populated markets, we generally seek to initially open several stores within a short span of time in
order to maximize the effect of initial promotional programs and achieve economies of scale. After opening this initial cluster of new
stores, we seek to begin penetrating the less densely populated surrounding areas. This strategy enables us to achieve additional
distribution and advertising efficiencies in each market.
Products and Purchasing
Our stores offer DIY and professional service provider customers a wide selection of brand name and private label products for
domestic and imported automobiles, vans and trucks. We do not sell tires or perform automotive repairs or installations. Our
merchandise generally consists of nationally recognized, well-advertised, premium name brand products such as AC Delco, Armor
All, Bosch, BWD, Cardone, Castrol, Gates Rubber, Monroe, Moog, Pennzoil, Prestone, Quaker State, STP, Turtle Wax, Valvoline,
Wagner, and Wix. In addition to name brand products, our stores carry a wide variety of high-quality private label products under our
BestTest®, BrakeBest®, Master Pro®, Micro-Gard®, Murray and Omnispark®, O’Reilly Auto Parts®, Power Torque®, Super
Start®, and Ultima® proprietary name brands. Our private label products are produced by nationally recognized manufacturers and
meet or exceed original equipment manufacturer specifications and provide a great combination of quality and value – a characteristic
important to our DIY customers. We have added O’Reilly branded chemicals and commodities as well as proprietary private label
products to all acquired CSK stores. These stores have also undergone hard-part resets, which significantly increased their hard-part
SKU offering, giving our customers in all stores a good, better, and best product offering.
We purchase automotive products in substantial quantities from over 500 vendors, the five largest of which accounted for
approximately 22% of our total purchases in 2010. Our largest vendor in 2010 accounted for approximately seven percent of our total
purchases and the next four largest vendors each accounted for approximately three to five percent of such purchases. We have no
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long-term contractual purchase commitments with any of our vendors, nor have we experienced difficulty in obtaining satisfactory
alternative supply sources for automotive parts. We believe that alternative supply sources exist at substantially similar costs, for
substantially all of the automotive products that we sell. It is our policy to take advantage of payment and seasonal purchasing
discounts offered by our vendors and to utilize extended dating terms available from vendors. During 2010, we entered into various
programs and arrangements with certain vendors that provided for extended dating and payment terms for inventory purchases. As a
whole, we consider our relationships with our vendors to be very good.
Pricing
We believe that a competitive pricing policy is essential to successfully operate in the automotive aftermarket business. Product
pricing is generally established to compete with the pricing policies of competitors in the market area served by each store. Most
automotive products that we sell are priced based upon a combination of competitor price comparisons and internal gross margin
targets and are generally sold at a discount to the manufacturer’s suggested retail price with additional savings offered through volume
discounts and special promotional pricing. 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.
We have repositioned the product offering and pricing in all CSK stores to an every-day low price strategy to ensure we are
competitive in every market. We believe competitive pricing is needed to grow our market share and maintain a customer’s repeat
business, and we believe strongly that this strategy is more sustainable, requires less promotional spending and will produce better
results than CSK’s historical promotional-based, high-low pricing strategy.
Professional Parts People
We believe our highly trained team of Professional Parts People is essential in providing superior customer service to both DIY and
professional service provider customers. Because a significant portion of our business is from professional service providers, our
Professional Parts People are required to be technically proficient in automotive products. In addition, we have found that the typical
DIY customer often seeks assistance from a Professional Parts Person, particularly when purchasing hard parts. The ability of our
Professional Parts People to provide such assistance to the DIY customer creates a favorable impression and is a significant factor in
generating repeat DIY business.
We screen prospective team members to identify highly motivated individuals who either have experience with automotive parts or
repairs, or automotive aptitude. New store team members go through a comprehensive orientation about the culture of our company
as well as the requirements for their specific job position. Additionally, during their first year of employment, our parts specialists go
through extensive automotive systems and product knowledge training to ensure they are able to provide the highest level of service to
our customers. Once all of the required training has been satisfied, our parts specialists become eligible to take the O’Reilly Certified
Parts Professional test. Passing the O’Reilly test helps prepare them to become certified by the National Institute for Automotive
Service Excellence (ASE).
All of our stores have the ability to service professional service provider customers. For this reason, select team members in each
store complete extensive sales call training with their regional field sales manager. Afterward, these team members spend one day per
week calling on existing and potential professional service provider customers. Additionally, each team member engaged in such
sales activities participates in quarterly advanced training programs for sales and business development.
Customer Service
We seek to provide our customers with an efficient and pleasant in-store experience by maintaining attractive stores in convenient
locations with a wide selection of automotive products. We believe that the satisfaction of DIY and professional service provider
customers is substantially dependent upon our ability to provide, in a timely fashion, the specific automotive products requested.
Accordingly, each O'Reilly store carries a broad selection of automotive products designed to cover a wide range of vehicle
applications. We continuously refine the inventory levels and assortments carried in our stores, based in large part on the sales
movement tracked by our inventory control system, market vehicle registration data, failure rates and management's assessment of the
changes and trends in the marketplace.
Marketing
Marketing to the DIY Customer – We use an integrated marketing program, which includes television, radio, direct mail and
newspaper distribution, in-store and online promotions, and sports and event sponsorships, to aggressively attract DIY customers. The
marketing strategy we employ is highly effective and has led to an increase in awareness of the O’Reilly brand across our geographic
footprint. We utilize a combination of brand and product/price messaging to drive retail traffic and purchases, which frequently
coincide with key sales events. During 2010, we continued to co-brand all forms of advertising in the markets containing acquired
CSK stores. This manner of advertising and marketing is essential to not only build awareness of the O’Reilly brand in those markets,
FORM 10-K