The News
AutoZone is nearly doubling its network of mega hubs, the oversized stores that hold deep inventory for the stores around them. CEO Phil Daniele told analysts on last month’s call that the chain will open more than 40 next year and reach about 300 within three years.
AutoZone has already sped up, opening 16 mega hubs in the fourth quarter and 39 across the year, the most it has added in any of the last four years, according to its results and 10-K filings.
Why It Matters
Every parts distributor has to decide where its slow, hard-to-find items sit. AutoZone’s answer is to move more of them out of the DC and into stores close to the customer.
Its network now works in three layers:
Regular store: 20,000 to 25,000 SKUs, restocked mainly from the nearest DC.
Hub store: 40,000 to 50,000 SKUs for the stores nearby.
Mega hub: 80,000 to 110,000 SKUs, which surrounding stores can usually draw on the same day.
“When you jam more parts in the local market closer to the customer,” Daniele said, it “drives sales.” The 16% lift for commercial programs tied to a mega hub is how AutoZone puts a number on that.
By The Numbers
AutoZone is not the only chain pushing stock toward the customer. Its two closest rivals have each landed somewhere different.
AutoZone holds its deepest range in 172 mega hubs and is adding about 130 more.
Advance holds it in 38 market hubs of 70,000 to 80,000 SKUs, fed by 15 DCs. It wants 60 hubs by mid-2027.
O’Reilly holds it in 32 DCs that stock 156,000 SKUs on average, according to its 10-K. It backs them with 399 hubs.
So two of the three are betting on store-sized hubs. O’Reilly instead runs DC trucks to stores five nights a week, plus several same-day runs of hard-to-find parts to more than 95% of its stores.
Peer Insights
Advance is the closest test of the hub model, because it built most of its hubs out of buildings it was closing. Its executives have laid out what that taught them on their May and August calls:
It reused old DCs: Advance cut from nearly 40 DCs to 15 in two years and turned “a lot of the old smaller DCs” into market hubs, CEO Shane O’Kelly said. Only four of its first 35 hubs were new sites.
New sites sell better: CFO Ryan Grimsland said the new-build hubs are “performing a little bit better,” because the converted buildings “weren’t necessarily in prime retail locations.”
Hubs still pay: Markets with a hub sell about 100 basis points more than markets without one, Grimsland said.
So in Advance’s early results, where a hub sits has mattered more than saving money on the building. The company has raised this year’s openings to 15 to 20 from 10 to 15. It is also rebidding the freight that feeds those hubs.
Pushback
Hubs cost money up front, while O’Reilly shows they are not the only way to win the repair shop:
More inventory: AutoZone’s inventory rose 10% to $7.7 billion. CFO Jamere Jackson tied it to new stores, growth initiatives and inflation.
Lower returns: AutoZone’s adjusted return on invested capital fell to 35.8% from 41.3%, which Jackson put down to the faster pace of store investment.
O’Reilly’s pace: Its professional comparable store sales grew about 10% last quarter, the fourth double-digit quarter in a row, CEO Brad Beckham said. AutoZone’s domestic commercial sales grew 8.6% in its latest quarter, a figure that also counts new stores.
So O’Reilly is winning repair shops at least as fast while keeping most of its depth in DCs.
What’s Next
Advance planned nine market hub openings for its third quarter, which it reports next month. If more of those are new builds in retail locations, its next results will show whether Grimsland’s gap between new and converted hubs is real. For AutoZone, the test is whether the 16% lift holds as the network grows toward 300.
