O'Reilly Auto Parts 2012 Annual Report Download - page 16

FORM 10-k
6
Strategic Regional Tiered Distribution Network:
We believe our commitment to a robust, regional, tiered distribution 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 strategic regional
tiered distribution network includes DCs and Hub stores. Our inventory management and distribution systems electronically link each
of our stores to one or more DCs, which provides for efficient inventory control and management. We currently operate 24 regional
DCs, which provide our stores with same-day or overnight access to an average of 142,000 stock keeping units (“SKU”s), many of
which are hard-to-find items not typically stocked by other auto parts retailers. To augment our robust DC network, we operate 240
Hub stores that also provide delivery service and same-day access to an average of 42,000 SKUs to other stores within the surrounding
area. We believe this timely access to a broad range of products is a key competitive advantage in satisfying customer demand and
generating repeat business.
Experienced Management Team:
Our Company philosophy is to “promote from within” and the vast majority of our senior management, district managers and store
managers have been promoted from within the Company. We augment this promote from within philosophy by pursuing strategic
hires with a strong emphasis on automotive aftermarket experience. We have a strong management team comprised of senior
management with 146 professionals who average 18 years of service; 273 corporate managers who average 15 years of service; and
386 district managers who average 13 years of service. Our management team has demonstrated the consistent ability to successfully
execute our business plan and growth strategy by generating 20 consecutive years of record revenues and earnings and positive
comparable store sales results since becoming a public company in April of 1993.
Growth Strategy
Aggressively Open New Stores:
We intend to continue to consolidate the fragmented automotive aftermarket. During 2012, we opened 180 net, new stores, acquired
56 stores and we plan to open approximately 190 net, new stores in 2013, which will increase our penetration in existing markets and
allow for expansion into new, contiguous markets. The sites for these new stores have been identified, and 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 to achieve our goal of continued profitable sales 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.
Grow Sales in Existing Stores:
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.
Selectively Pursue Strategic Acquisitions:
Although the automotive aftermarket industry is still highly fragmented, we believe the ability of national auto parts chains, such as
ourselves, to operate more efficiently and proficiently than smaller independent operators 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 in existing markets and provide a springboard into new markets.
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