Opportunity Analysis of E-Retailing for Automotive Parts and Service in the North American Market


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Opportunity Analysis of E-Retailing for Automotive Parts and Service in the North American Market

  1. 1. Opportunity Analysis of E-Retailing for Automotive Parts and Service in the North American Market Digital Purchases Likely to Account for Over 10 Percent of Total Sales by 2020 Brief Summary NBE6-18 July 2013
  2. 2. 2NBE6-18 Contents Section Slide No. Executive Summary Research Scope, Background, Objectives and Methodology Definitions / Segmentation E-Retailing Market Overview (Automotive and non-Automotive) • Global Online Retail Sales Outlook • North American Online Retail Outlook • Online Product Penetration Rates – Automotive and Other Categories • Key Retailers Bricks vs. Clicks Sales • Key Legislative Developments in E-Retailing—U.S. • Macro to Micro Implications in Bricks and Clicks Retailing in Automotive Impact of Mega Trends on Automotive Parts E-Retailing • Key Mega Trends Impacting Automotive Aftermarket • Impact of Mega Trends: Urbanization • Impact of Mega Trends: Connectivity • Impact of Mega Trends: Social Trends • Global Social Commerce Users Forecast
  3. 3. 3NBE6-18 Contents (Continued) Section Slide No. Automotive Parts E-Retailing Demand Factors & Challenges • Key Influencers of Parts-Related Online Research and Sales • Key Reasons for Not Buying Parts Online • Key Market Challenges Facing Automotive E-Retailers Automotive Parts and Service E-Retailing Market Overview • The Automotive E-Retailing Gap • Growth Influencers in Auto Parts E-Retailing • Digitization Expansion Trend in Automotive Parts and Service • Automotive Parts E-Retailing Evolution • Key Automotive E-Retail Participants in Operation • Automotive E-Retailing Value Chain • Automotive E-Retailing Value Chain Analysis • Recent Strategic Developments in Automotive Parts E-Retailing Automotive E-Retailing Revenue Analysis & Forecast • Automotive Parts E-Retailing—Total Revenue Scenario Analysis • Revenue Forecast Scenario Assumptions to 2020
  4. 4. 4NBE6-18 Contents (Continued) Section Slide No. • Online Parts Revenue vs. Total Aftermarket Parts Revenue • Percentage Revenue Forecast by Competitor Type • Automotive Parts Gross Merchandise Volume By Business Model Type • Automotive E-Retailing Revenue by Product Category Automotive Parts E-Retailing Business Models • Automotive E-Retailing Business Models: Direct and Marketplace • Why The Marketplace Model Works • Case Study: Amazon.com Marketplace Model • Case Study: eBay Motors Marketplace Model • Case Study: Ahwooga.com Marketplace Model • Business Model Analysis by Market Participant From Bricks to Clicks: Digital Convergence Strategies in Automotive Parts Retailing • Future of Automotive Parts Sales: Bi-Channel to Omni-Channel
  5. 5. 5NBE6-18 Contents (Continued) Section Slide No. • Convergence Strategy: Social Commerce in Automotive Parts • Case Study: AutoZone Social Commerce Strategy • Case Study: Advance Auto Parts Social Commerce Strategy • Convergence Strategy: Mobile Commerce in Automotive Parts • Case Study: eBay Motors App • Case Study: AutoZone App • Convergence Strategy: Customized Fulfillment • Impact of Emerging Fulfillment Models on Auto Parts Sales • Fulfillment Comparative Analysis for Key Participants • Convergence Strategy: Service Aggregation • Case Study: DealerCoupons.ca’s Service Aggregation Model • Case Study: AutoMD’s Service Aggregation Model • Convergence Strategy: Digital Retailing • Convergence Strategy: Telematics • Bricks and Clicks Convergence Matrix for Parts Retailing
  6. 6. 6NBE6-18 Contents (Continued) Section Slide No. Automotive Parts E-Retailing Competitive Analysis by Participant Type • Automotive E-Tailer Future Growth Outlook • Mass E-Tailer/Aggregator Future Growth Outlook • Traditional Distributor/Retailer Future Growth Outlook • Mass Retailer Future Growth Outlook • OES/Dealers Future Growth Outlook Automotive Parts E-Retailing Competitive Analysis & Key Competitor Profiles • Company Profile: Mass E-Tailer/Aggregator -- Amazon.com • Company Profile: Aggregator -- eBay • Company Profile: Automotive E-Tailer -- US Auto Parts Network Inc. • Company Profile: Traditional Distributor/Retailer -- AutoZone • Company Profile: Traditional Distributor/Retailer -- NAPA • Company Profile: Traditional Distributor/Retailer -- Advance Auto Parts • Company Profile: OES -- Ford Motor Company Conclusions and Future Outlook Appendix
  7. 7. 7NBE6-18 Executive Summary
  8. 8. 8NBE6-18 Executive Summary—Key Findings Automotive parts e-retail revenues were an estimated $4.6 billion in 2012 and is expected to cross the $16 billion mark by 2020 Source: Frost & Sullivan analysis. Online sales account for about 4 percent of total aftermarket retail level sales. By 2020, e-retail sales are expected to reach about 10 percent of aftermarket revenue with a CAGR of 17 percent Marketplaces such as eBay and Amazon accounted for about 80 percent of Gross Merchandize Volume (GMV) in 2012. Increasing e-tailing through bricks and mortar retailers’ own websites will lead to 5 percent increase in GMV share for the direct channel Pure-play independent automotive e-tailers expected to lose market share, dropping from 57 percent in 2012 to 18 percent in 2020. Mass e-tailers and traditional automotive retailers/distributors will be neck-to-neck leaders with 26 percent and 25 percent share respectively. Exterior parts, performance components, braking and filtration were the leading categories, accounting for nearly 50 percent of all online sales. Tires, which is currently at about 4 percent of overall sales, are likely to witness the strongest growth over the forecasted period 4 Convenience factors such as fulfillment time and cost to customer will supersede lower online pricing as key value propositions for parts e-retailing5 1 2 3 Automotive Parts e-Retailing Market: Key Takeaways, North America, 2012-2020
  9. 9. 9NBE6-18 Executive Summary -- Online Product Penetration Rates Consumer electronics, entertainment products show the highest share of online sales; penetration rates for automotive parts is currently low but is expected to reach almost 10 percent by 2020 60 65 82 90 93 96 40 35 18 10 7 4 0% 20% 40% 60% 80% 100% Automotive Parts E-Retailing Market : Online Product Penetration by Category, North America, 2012 Source: BB&T Capital Markets, Frost & Sullivan analysis. 36 43 75 82 85 90 64 57 25 18 15 10 0% 20% 40% 60% 80% 100% Automotive Parts & Accessories Home Decor Health & Beauty Apparel & Fashion Books, Music and Videos Electronics (including computers) 2012 2020
  10. 10. 10NBE6-18 Revenue(Billion$) OnlineTotal Aftermarket Executive Summary -- Online Parts vs. Total Aftermarket Parts Revenue Parts e-retailing will account for about 10 percent of aftermarket revenue by 2020 $131.5 B $4.6 B $167.3 B $16.6 B Automotive Parts e-Retailing Market: Online Parts vs. Total Aftermarket , North America, 2012 and 2020 2012 2020 Note: All figures are rounded; the base year is 2012. Source: Frost & Sullivan analysis. Note: Total aftermarket sales figures are measured at retail level and does not include revenue generated from service labour. Only retail revenue measured to avoid double counting revenue for auctions and B2B 2016 $8.2 B $149.6 B ~4 % of total aftermarket ~6 % of total aftermarket ~10 % of total aftermarket 2X 4X
  11. 11. 11NBE6-18 Executive Summary -- Automotive E-Retailing by Product Category Exterior parts, brakes, performance, powertrain and filtration categories drive nearly 50 percent of revenue; Tires are expected to witness the highest growth in online retailing Source: Frost & Sullivan analysis. Automotive Parts e-Retailing Market: Product Category Revenue Analysis, North America, 2012 and 2020 Categories Revenue (2012; Approx; Billions) Revenue (2020; Approx; Billions) % Share (2012) % Share (2020) CAGR Online Value Position Exterior $0.8 $3.1 17% 19% 19.0% Prices lower by 25-30%; appeals to DIY segment, small installers; body parts, lighting key parts Brakes $0.6 $2.2 13% 13% 17.4% Prices lower by 10-20%; appeals to DIY segment, small installers; friction materials key parts Performance $0.5 $2.2 11% 13% 19.8% Primary appeal to enthusiasts on eBay Powertrain $0.4 $1.3 10% 8% 14.1% Low volume; higher cost drives revenue Filtration $0.4 $1.2 9% 7% 13.7% High volume; lower average price drives down revenue Interior $0.4 $1.5 8% 9% 19.1% Strong growth segment as lower cost and ease of installation will appeal to both DIYand DIFM customers Electrical $0.3 $0.7 6% 4% 11.6% DIFM product will see limited growth Tires $0.2 $1.5 4% 9% 29.9% Strongest growth expected Others $1.0 $3.0 22% 18% 14.5% Tools, wipers will drive growth NOTE: Exterior parts include lights, fenders, bumpers, grilles, side mirrors, hoods, door handles and other accessories Powertrain parts include engines, transmissions and other related parts Filtration includes oil, air, fuel and cabin air filters Interior parts include mirrors, floor mats, seat covers, interior door handles and other accessories Electricals include starters, alternators, spark plugs and wire sets Others include chassis parts, exhaust , HVAC, infotainment , tools and wipers
  12. 12. 12NBE6-18 Executive Summary -- Digitization Expansion in Auto Parts and Service Growth in personal, in-vehicle and service shop connectivity is creating new customer touch points and driving the growth of online and digital sales of automotive parts and service Automotive Parts e-Retailing Market: Digitization Opportunities in Automotive Aftermarket, North America, 2012-2020 Pre -2009 2009 -2012 2013-2016 2016-2020 • Virtual service monitoring (eg. AudiCam) • Mobile parts shopping • Online service pre-sale with parts purchase • Rich media service advice and tutorials • Service and maintenance apps • Web and app-enabled service scheduling • Electronic parts and service promotions • Web-based parts and accessories sales • Online dealer and service shop locator • Online parts catalogs; comparison tools • Remote repair, assisted repair • Remote diagnostics, predictive analytics • In-vehicle parts purchases • Location-based parts and service purchase Source: Frost & Sullivan analysis. Full digital integration of the automotive service and parts value chain maximizes revenue generation opportunities by increasing touch points for parts e-sales as well as other related products Indicates direct revenue generation opportunities
  13. 13. 13NBE6-18 Executive Summary -- Automotive Parts E-Retailing Evolution Emergence of independent e-tailers such as US Auto Parts Network and mass e-tailers such as Amazon.com fuelled the first wave of parts e-retailing penetration 1995 2000 2005 2012 • Limited sales, primary focus on product information • Limited product availability • Expansion of product lines and SKUs • Web auctions • Emergence of marketplace channels enabling independent retailers to sell through portals • Emergence of general merchandise retailers in the automotive category • Focus on improving customer experience • Affiliate programs for generating traffic • Free shipping • Same-day shipping • Extended price guarantees • Relaxed return policies • Renewed interest in e-commerce from traditional parts retailers • Mobile shopping KeyIndustry Developments 1996: Autozone launches autozone.com. More focus on commercial program than attracting regular consumers 2000: US Auto Parts Network and PartsAmerica.com launch websites. 2000: eBay launches eBay Motors in the U.S. 2006: Amazon.com adds automotive parts and accessories store 2009: Advance Auto Parts begins offering free shipping for purchases over $75. Automotive Parts e-Retailing Market: Automotive Internet Sales Evolution, North America, 1995-2012 Market Trends All images are for representational purposes only. Image Source: www.autozone..com; Source: Frost & Sullivan analysis. 1st Wave Online Development 2nd Wave Marketplace Growth 3rd Wave Market expansion 4th Wave Digital expansion
  14. 14. 14NBE6-18 Executive Summary -- Automotive E-Retailing Value Chain The automotive e-retailing value chain is rapidly expanding, providing emerging opportunities for auxillary participants such logistics providers, service aggregators and IT solution providers Source: Frost & Sullivan analysis. Automotive Parts e-Retailing Market: Automotive E-Retailing Value Chain, North America, 2012 Auto Parts Suppliers Delphi, Federal Mogul, Affinia, TRW Traditional Retailers/ Distributors NAPA, AutoZone Mass Merchant Walmart, Sears, CostCo Internet Mass Merchant/ Aggregator Amazon, eBay, Ahwooga OES Ford, GM, Honda, Nissan, other OEMs Dealers AutoNation, Penske Automotive E-tailer US Auto Parts Network, Summit Racing Diagnostic Data Providers AllData, Mitchell1, MotoLogic Logistics Providers FedEx, UPS, Bufferbox, Amazon Locker Payment Providers PayPal, Credit Cards, Bill Me Later, Google Checkout IT Solution Providers SAP, IBM, Channel Advisor, WHI Service Aggregators AutoMD, RepairPal App Developers Frooition, Tweddle Group Telematics Providers OEMs, Delphi, Verizon CORE PARTICIPANTS AUXILLARY PARTICIPANTS
  15. 15. 15NBE6-18 Executive Summary -- Automotive Parts Retail Value Chain Analysis Internet mass merchants such as Amazon.com show the strongest potential for growth while increasing interest in parts e-retailing from established participants will reduce opportunities for automotive e-retailers Automotive Parts e-Retailing Market : Value Chain Analysis – Core Participants, North America, 2012 Source: Frost & Sullivan analysis. Participant Type Current Status Future Scenario Growth Potential COREPARTICIPANTS Traditional Parts Distributor Little or no direct e-retailing; about 1-2% of overall sales can be attributed to e-retailing Expansion of both B2B and B2C channels Traditional Parts Retailer Increasing focus on e-retailing; gaining competitive edge in fulfillment; not yet competitive on fulfillment Will become more competitive through improved logistics, acquisitions of smaller automotive e-tailers Traditional Mass Merchant Overall strong focus on e-retailing but limited sales of automotive parts Likely to strengthen focus on automotive through alliances Internet Mass Merchant Strong focus on automotive parts e-retailing; emerging winner Likely to emerge as market share leader in parts e-retailing Internet Automotive Parts Retailer Very strong sales growth but limited brand equity; most participantsfocus on third-party channels to generate sales Expected to lose out on market share to automotive retailers and online mass merchants; many companies likely to be acquired by bigger competitors OES/Dealers Limited exposure to direct e-retailing Expected to gain market share through e-sales of accessories and apparel Parts Suppliers Limited exposure to direct e-retailing B2B opportunity through direct online sales to installers, fleets Stable Increasing
  16. 16. 16NBE6-18 Executive Summary -- Comparative Analysis of Key Participants Amazon, AutoZone and Advance Auto Parts show the highest growth potential with robust business models and strategic initiatives in place Participant Participant Type Current Strategy Future Strategy Growth Potential Amazon Mass E-tailer Focus on pricing, selection and fulfillment; marketplace increases customer choice while generating commission revenue Move toward more direct retailing on its own posing competitive threat to smaller e-tailers who sell through its marketplace eBay Mass Aggregator More than 50 percent of GMV through its marketplace; aggressively growing its automotive mobile commerce capabilities Will face stiff competition from emerging aggregators; wider acceptance of e-retail in automotive may diminish dominance US Auto Parts Network Inc. Automotive E-tailer Current online revenue leader in aftermarket; acquisitions have expanded reach and revenue but reduced profits Will face stiff competition from more established participants; likely to invest in raising brand equity to foster growth AutoZone Traditional Parts Retailer Vertical integration of e-commerce capabilities through acquisition of e-tailer, investment in its diagnostic software unit Will target improvement in shipping times, geographic coverage, mobile and social commerce to gain market share Advance Auto Parts Traditional Parts Distributor/ Retailer E-commerce growth one of company’s key objectives; investing heavily in both B2B and B2C capabilities Will position itself as the automotive “digital solution provider” through combination of parts e-retail, repair data, technician e-learning services NAPA Traditional Parts Distributor/ Retailer Lagging in online presence with fulfillment models, limited inventory and weak mobile and social commerce strategies Stronger e-retailing model expected in the short term Ford OEM/OES Strongest presence among OEMs in e-retailing but lagging behind other competitors Increase focus on B2B channels; limited focus on B2C in short term Automotive Parts e-Retailing Market: Comparative Analysis of Key Participants, North America, 2012 and 2020 Growth Potential High Medium Low
  17. 17. 17NBE6-18 Executive Summary -- Business Model Analysis by Market Participant Most participants pursue a hybrid strategy to maximize their e-retailing footprint Participant Type Direct Marketplace Business Strategy Traditional Parts Distributor Because of their large B2B customer base and strong brand equity, traditional parts distributors primarily follow the direct model. Only smaller participants sell their products through aggregators Traditional Parts Retailer Automotive parts retailers typically have strong brand presence and investment capabilities and therefore primarily pursue direct sales. Traditional Mass Merchant Mostly direct sales as mass merchants have strong brand equity and investment capabilities, particularly in fulfillment. However, participants such as Walmart are currently exploring their own marketplace channel to compete with eBay and Amazon Mass E-tailer Amazon is a key marketplace facilitator for other participants but has been increasingly growing its own direct sales as well Automotive Parts E-tailer Low brand equity favors pursuit of marketplace channels to leverage the branding, marketing and fulfillment capabilities of aggregators. Only a limited number of participants have been successful in direct e-retailing OES/Dealers OEMs only sell direct to avoid brand dilution; dealers mostly favor marketplace to extend customer base Parts Suppliers Almost no direct e-retailing; some marketplace presence primarily from smaller and offshore manufacturers Automotive Parts e-Retailing Market: Market Participant Business Model Analysis, North America, 2012 Source: Frost & Sullivan analysis. Degree of participation High Medium Low
  18. 18. 18NBE6-18 Future of Automotive Parts Sales: Bi-Channel to Omni-Channel Automotive parts and service purchases will evolve from exclusively single channel “Bricks” and “Clicks” models to a well-integrated cross-channel that unlocks the full potential of both models Bricks Model (pre-2000) Revenue Generation: Product sales and service make bulk of revenue ; service revenue key to driving margins Investment: High; Key cost areas include real estate, construction, inventory, personnel, marketing and IT infrastructure Product Coverage: Physical showrooming limited by floor space Fulfillment: Consumer browses in-store products and makes purchase; Installer recommends product, consumer makes purchase and product is installed at bay Service Opportunities: Integral to bricks participants ‘ revenue strategies Revenue Generation: Product sales and commissions only revenue source; aggregators also generate revenue from payment platforms Investment: Low; Key cost areas include personnel, marketing , fulfillment and IT infrastructure Product Coverage: Unlimited access to products through “virtual showrooming” Fulfillment: Consumer browses web or mobile store and purchases product with support from virtual staff; Product shipment requires fee in some cases Service Opportunities: Currently, very limited in pure clicks retailing Current Convergence Strategies      Source: Frost & Sullivan analysis. Future Convergence Strategies Websites Social Commerce Mobile Commerce Customized Fulfillment Service Aggregation Digital Retailing Telematics Clicks Model (pre-2000)
  19. 19. 19NBE6-18 Executive Summary -- Bricks and Clicks Convergence Matrix for Parts Retailing Same day shipping, click ‘n’ collect in store, digitization of the store experience and service aggregation are most likely to see high levels of adoption and will be the building blocks of the omnichannel strategy Automotive Parts e-Retailing Market: Bricks and Clicks Convergence Matrix, North America, 2012 Low Degree of Adoption High DegreeofCertaintyLowHigh Same Day Shipping Digital Staff In-vehicle shopping Crowdsourced Delivery Locker Box Location-based deals/shopping Service Aggregation Click ‘n’ Collect Social Selling Source: Frost & Sullivan In-app augmented reality Digital Kiosks
  20. 20. 20NBE6-18 Parameters Current Future Market Status • Total online sales of parts and accessories was $4.6 billion in 2012, representing about 4 percent of all aftermarket sales • The market grew from $3.1 billion in 2009 at a CAGR of about 14.2 percent • E-retailing for automotive parts is expected to reach $16.6 by 2020, accounting for about 10 percent of all aftermarket parts sales • The market will grow at a CAGR of 17.4 percent Competition • Marketplace platforms accounted for 80 percent of all sales; the rest being sold through the direct channel • Independent automotive e-tailers led the market with about 48 percent of revenue share • Direct channel will represent 25 percent of all sales, while marketplace will drop to 75 percent • Mass e-tailers (Amazon, Google) and traditional retailers (AutoZone, Pep Boys) will lead market with 26 and 25 percent of sales respectively Solutions • 96-98 percent of purchases made through websites. • Apps, mobile sites and social media platforms are primarily used as marketing and promotional tools • Nearly 20 percent of all e-sales likely to be generated through mobile platforms • Full mobile and social commerce likely to be pursued Value Proposition • Key differentiator is pricing, which is lower than traditional bricks channels by 15-20 percent • Ability to compare prices online, access to higher number of SKUs and digital promotions other factors driving consumers to buy parts online • Convenience factors such as faster shipping, customized fulfillment and virtual repair support will emerge as key differentiators between competitors Product Segmentation • Exterior and performance parts accounted for about 28 percent of sales, as these products tend to be offer the most value (25-30 percent less expensive) when purchased online • Brakes and filtration were other key categories, with higher volumes but slightly lower revenue share at 11 and 9 percent respectively • Tires will account for 9-10 of all sales by 2020 with a 30 percent CAGR • Exterior, performance and brakes will continue to be the dominating categories in 2020 Executive Summary—Key Findings and Future Outlook Successful independent automotive e-tailers will be acquisition targets leading to greater consolidation in the market Source: Frost & Sullivan analysis.
  21. 21. 21NBE6-18 Market Engineering Methodology One of Frost & Sullivan’s core deliverables is its Market Engineering studies. They are based on our proprietary Market Engineering Methodology. This approach, developed across the 50 years of experience assessing global markets, applies engineering rigor to the often nebulous art of market forecasting and interpretation. A detailed description of the methodology can be found here. Source: Frost & Sullivan research