Five-Forces Model Analysis of Auto Parts Industry
Spring 2007
Autozone (AZO on NYSE)
From Yahoo Finance
OP AUTO PARTS STORES COMPANIES BY MARKET CAP
Company
AutoZone Inc.
Advance Auto Parts Inc.
O'Reilly Automotive Inc.
Pep Boys - Manny, Moe & Jack
CSK Auto Corp.
Tilden Associates Inc.
Symbol Price Change Market Cap
AZO
123.92 0.29%
8.76B
AAP
36.79 1.27%
3.87B
ORLY
32.71 0.28%
3.72B
PBY
14.76 1.20%
802.86M
CAO
17.03 0.18%
746.14M
TLDN.OB
0.10 0.00%
1.14M
P/E
15.96
16.90
21.17
N/A
27.25
33.33
Industry Leader AZO
AZO
Rank
AZO VS. INDUSTRY LEADERS
Statistic
Market Capitalization
AZO
8.76B
P/E Ratio (ttm)
CAO
27.25 15.96 4 / 7
PEG Ratio (ttm, 5 yr expected)
- 1/7
1.08 N/A
Revenue Growth (Qtrly YoY)
ORLY 10.00% 4.10% 3 / 7
EPS Growth (Qtrly YoY)
AZO
Long-Term Growth Rate (5 yr)
16.40%
- 1/7
N/A 13.0% N/A
Return on Equity (ttm)
AZO
109.30%
- 1/7
Long-Term Debt/Equity (mrq)
AZO
3.469
- 1/7
Dividend Yield (annual)
PBY
1.80%
N/A N/A
BUSINESS SUMMARY
AutoZone, Inc. operates as a specialty retailer of automotive parts
and accessories. Its stores offer various products primarily to do-ityourself customers for use in cars, sport utility vehicles, vans, and
light trucks, such as new and remanufactured automotive hard parts,
maintenance items, and accessories and non-automotive products.
http://edgarscan.pwcglobal.com/recruit/edu.html
http://www.autozone.com/
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Five-Forces Model Analysis of Auto Parts Industry
Spring 2007
Classifying Autozone’s Industry with 5-Forces Model in order
to determine profit potential
Industry:
Retail Automotive Parts
Competition Dimensions
Actual Competitor Rivalry
 Actual Competitors (Per Yahoo Finance)
Autozone
Advance Auto Parts
O’Reilly Automotive
Pep boys
CSK Auto Corp.
NAPA
WalMart ?
K-Mart ?
 Look At Industry Sales Growth and Market Share per
Financial Statements (spread sheet)
 Switching costs (can these firms easily enter another
industry??)
 Are there Economies of Scale??
 Does specialized industry based knowledge take place
over time?
 Are the costs primarily fixed, variable or mixed??
 Excess Capacity?? (look at same store sales)
 Is it difficult (legal or other reasons) to liquidate and
leave business?
Based on the above factors, do you see high or low
degrees of competition between existing firms
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Five-Forces Model Analysis of Auto Parts Industry
Spring 2007
Threat of Potential Entrants or Competitors (“Force 2”)
 Economies of Scale Required to enter and effectively
compete?
 First Mover Advantages (Brand identity or advantages)?
 Ease of Access to Supplier and Customer Distribution
Networks?
 Necessity of Supplier or Customer Relationships to
effectively compete?
 Existence of Legal Barriers to Entry?
 What type of competitor is WalMart?? (all or specific
product lines and services?)
Based on the above factors, do you see high or low
degrees of competition between existing firms given the
potential of new entrants into the industry?
Threat of Substitute Products (“Force 3”)
This could be substitute for retail car parts
This could be due to changes in technology (can’t fix it now)
This could be due to changes in distribution networks
(internet, salvage yards, etc.)
How does this affect current competitive pressures?
Overall, is this a High, Low, or Mixed competition
environment?
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Five-Forces Model Analysis of Auto Parts Industry
Spring 2007
Supplier and Customer Bargaining Power
Ability to exert “power” dictates where pricing and cost
flexibility lies for firm and industry.
Bargaining Power of Buyers (Customers)
If Firms in the Industry exert Power over the Buyers
(customers), then Firms have the ability to maintain or
increase prices. Otherwise, your product may be viewed as a
commodity. In this case, you react to price changes of
competition.
Determining Factors:
 Switching Costs (Can Customers easily acquire product
and service elsewhere?)
 Differentiation (Is this essentially a commodity
product?)
 How critical is product to customers in terms of price
(cost) and quality?
 Many small customers or just a few dominant
customers?
 Do customers buy in bulk or small batches?
Who do you think has the power in the retail auto parts
industry (Customer or the Firm)? What does this do to profit
potential?
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Five-Forces Model Analysis of Auto Parts Industry
Spring 2007
Bargaining Power of Suppliers (Firm is the Customer)
If Firms in the Industry exert Power over the Suppliers
(customers), then Firms have a greater ability to dictate
their costs. Otherwise, your product suppliers may be more
able to raise their prices. In this case, you react to price
changes of competition.
Determining Factors:
 Switching: Can suppliers easily find other customers?
Can firms in the industry easily find other suppliers?
 Are the suppliers’ products commodities or specialty
goods
 How important is the supplier cost and quality
relationship to members in the industry?
 Are there few suppliers (dominance) and how much of
your business requirements do they satisfy?
Who do you think has the power in the retail auto parts
industry (Suppliers or the Firms)? What does this do to
profit potential?
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