O'Reilly Auto Parts 2013 Annual Report Download - page 12

FORM 10-K
6
Strategic Regional Tiered Distribution Network:
We believe our commitment to a robust, regional, tiered distribution network provides 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 147,000 stock keeping units (“SKUs”), many of which are hard-
to-find items not typically stocked by other auto parts retailers. To augment our robust DC network, we operate 266 Hub stores that also
provide delivery service and same-day access to an average of 43,000 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 166 professionals who average 18 years of service; 210 corporate managers who average 16 years of service; and 404 district
managers who average 12 years of service. Our management team has demonstrated the consistent ability to successfully execute our
business plan and growth strategy by generating 21 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 2013, we opened 190 net, new stores and we plan
to open approximately 200 net, new stores in 2014, 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 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 predetermined 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. Therefore, 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:
The automotive aftermarket industry is still highly fragmented and 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. Our
intention is to continue to selectively pursue strategic acquisition targets that will strengthen our position as a leading automotive
aftermarket parts supplier in existing markets and provide a springboard for expansion 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 overall 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. During 2013, we relocated 19 stores and renovated 57 stores. We believe that our ability to consistently achieve growth