Two Auto-Parts Retailers Gain Moats From Growing Cost Advantages, Industry Consolidation
O'Reilly and Advance have expanded their store bases through acquisitions and organic growth, enhancing their cost advantages.
O'Reilly Automotive (ORLY) and Advance Auto Parts (AAP) have both rapidly and profitably expanded their store bases through a mix of acquisitions and organic growth, enhancing their cost advantages in the process. These developments have led us to upgrade the economic moat ratings of O’Reilly and Advance to narrow from none. From our view, industry dynamics have become increasingly favorable for the largest auto-parts retailers; including AutoZone (AZO) and NAPA (operated by Genuine Parts (GPC)), we now think there are four auto-parts retail businesses that have achieved the scale to obtain narrow moats.
Macro conditions have become more favorable for the auto-parts retail market in recent years, but the industry's gains have been highly concentrated on just a few companies. In fact, while each of the narrow-moat retailers has expanded rapidly, the total number of auto-parts retail outlets has remained static over the past decade. Moreover, public disclosures of (formerly) private competitors (General Parts, for example) and other smaller publicly traded companies suggest that competitors are generating much lower profitability levels.
Liang Feng does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.