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The Future of Automotive Parts Retailing in North America: Are you Prepared for Digitalization?

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The proliferation of connectivity and an ongoing spurt of revenue from parts eRetailing have made digitalization one of the burning questions in the automotive aftermarket. Most participants …

The proliferation of connectivity and an ongoing spurt of revenue from parts eRetailing have made digitalization one of the burning questions in the automotive aftermarket. Most participants understand the urgency of having a digital strategy, but also face daunting challenges in engaging consumers digitally and maximize revenue growth from these emerging channels. This briefing will provide several strategic insights into the evolving nature of parts eRetailing, including:

- Key competitive factors
- Operational challenges faced by traditional parts distributors and retailers, eRetailers OEMs, dealer groups and parts suppliers.
- Best practices in digital retailing
- Comprehensive case studies

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  • -- Delivery speed, cost and convenience emerging as critical competitive factors in overall retail-- Free shipping for goods over a certain value already in place in parts eretailing-- Amazon, eBay experimenting with same day deliveries; Amazon, Google piloting locker boxes -- Walmart piloting crowdsourced delivery – a concept in which an actual shopper provides a delivery service. Could work as a fulfilment model in parts retail in which an installer who frequently visits store can deliver to DIY customers.
  • -- See examples in next slide
  • With the emergence of aftermarket telematics, NAPA should explore the potential of offering the technology to its customers -- both commercial and personal. Constant two-way communication will enable NAPA to improve its inventory management, predict and respond to potential vehicles issues (before the customer takes it to some other service shop), and offer more value to its customers. (Ex. A futuristic scenario could be NAPA customers with a telematics device installed in their cars could get a break on insurance -- customer gets added value and NAPA drives customer satisfaction and retention). -- The cost of these devices could be partially absorbed or subsidized by the aftermarket distributor or retailer
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    • 1. The Future of Automotive Parts Retailing in North America Are You Prepared for Digitalization? Kumar Saha, Senior Industry Analyst Automotive & Transportation September 19, 2013 © 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.
    • 2. 2 Today’s Presenter • Automotive analyst with key focus on both passenger and commercial vehicle aftermarket, emerging digital and channel strategies in the automotive industry • Strong experience working closely with OEMs, Tier-1 suppliers and aftermarket distributors on strategic consulting projects • Often cited by and published in key trade journals and mainstream media, such as Toronto Star, Aftermarket Business World, and Truck Parts Service Kumar Saha, Senior Industry Analyst Automotive & Transportation, Frost & Sullivan Follow me on:
    • 3. 3 Focus Points  Key Trends in eRetailing for Automotive Parts  Overview of the Automotive Digital Ecosystem  Market Size and Key Category Analysis for Online Parts Sales  Competitive Analysis  Business Model Analysis  Future of Digitalization in Automotive Aftermarket and Overall Impact on Parts eRetailing
    • 4. 4 Five Key Trends in Automotive Parts eRetailing Online parts sales represent 9-10% of total DIY parts revenue, compared to just 4% for total aftermarket revenue Amazon, eBay drive nearly 80 percent of total automotive parts and accessories merchandize value Traditional parts retailers creating aggressive strategies, acquiring eRetailers to increase share Online parts pricing (20%-40% cheaper) key success driver; shipping times, cost will determine next wave of competition What does this mean for industry participants? Diversification of digital channels (apps, dedicated portals, product videos) for DIY customers Partnerships with current aggregators / eRetailers and emerging ones such as Google, Wal-Mart ‘Bricks and clicks’ strategy with emphasis on fulfilment (delivery times, options) Increasing focus on selling to smaller, regional installers through online channels The DIY Choice Marketplace Winning Parts Retailers Ramping Up B2C to B2B All About Pricing 1 2 3 4 5
    • 5. 5 Digitization Expansion in Auto Parts and Service Growth in personal, in-vehicle and service shop connectivity is creating new customer touch points 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 (e.g. 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
    • 6. 6 The Parts eRetailing Strategic Ecosystem Customized fulfillment, big data gaining importance for success in eRetailing Parts eRetailing Strategic Ecosystem Platforms Channels Customer Competitive Current •Websites •Apps •Mobile •Social Media Current •Customized fulfillment •Multimedia DIY content Future •In-vehicle •Pop-up stores •Express stores Future •Location-based services •Augmented Reality •Remote services Current •Marketplace (Amazon, eBay) •Direct Future • Service aggregators (AutoMD) Current •SEO •Web Analytics • Big data Future •Telematics
    • 7. 7 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 Wal-Mart, 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
    • 8. 8 Online Parts vs. Total Aftermarket Parts Revenue – North America Online parts sales is estimated tol account for about 10% of aftermarket revenue by 2020 $131.5 B $4.6 B $167.3 B $16.6 B Automotive Parts and Service eRetailing Market: Online Parts vs. Total Aftermarket, North America, 2012, 2016 and 2020 2012 2020 Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan 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
    • 9. 9 Percent Revenue Forecast by Competitor Type Independent automotive eRetailers likely to lose market share as other participants ramp up their eRetailing efforts Automotive Parts and Service eRetailing Market: Revenue Forecast by Business Type, North America, 2009–2020 Note: All figures are rounded. The base year is 2012. Source: Frost & Sullivan
    • 10. 10 Automotive E-Retailing by Product Category 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
    • 11. 11 Automotive Parts GMV by Business Model Type Participants with high brand equity (AutoZone, automakers, Wal-Mart) will drive higher growth for the direct channel, while smaller automotive eTailers will increasingly favor the marketplace model Automotive Parts and Service eRetailing Market: Automotive GMV by Business Model Type, North America, 2012 and 2020 Direct Market place Direct Market place Marketplace Direct 2012 2020 $4.6 B $16.7 B Source: Annual reports; Frost & SullivanNOTE: GMV figures for eBay and Amazon are estimates only.
    • 12. 12 Business Model Analysis by Participant TypeMarketplace Direct 0% 100% 100% 2012: Participants with low brand equity prefer marketplace 2020: Auto eRetailers and parts suppliers will move towards more direct, dealers will expand marketplace presence 2012: Established participants predominantly sell directly 2020: OEMs will have increased preference for marketplace; other traditional ―bricks‖ competitors will likely become 100% direct Indicates future business model preference NOTE: Bubble size represents 2012 estimated revenue share Highly polarized market in business model preference
    • 13. 13 Why the Marketplace Model Dominates Parts eRetailing Sells automotive parts and accessories Marketplace does not sell automotive parts and accessories currently; likely to extend into category in the near term Benefits to Aggregator Benefits to Seller Benefits to Buyer • Greater selection increases Web traffic • Revenue through partners with core expertise in categories • Drop-shipping options put less pressure on warehouses • Scalability allows provider to add more services and create new revenue streams • Exposure to wider customer base • Increase brand equity through association with established aggregator • Access marketplace aggregators’ advanced digital platforms and fulfillment options • One-stop shopping for a variety of products • Access to different sellers, wider selection and pricing • Greater trust in unknown vendors because of continuous peer –driven vetting of products and services Key Marketplace Aggregators Logos for representation only. Source: Frost & Sullivan
    • 14. 14 eBay More Attractive than Amazon for Third-Party Sellers (OEMs, Suppliers) Automotive % of Total GMV 1-2% approx 8% approx. (includes vehicle and parts sales) Shipping/Fulfillment • Sellers primarily use Amazon fulfillment options • Free shipping available • Piloting same-day delivery, locker boxes •Sellers primarily do their own fulfillment •Currently, piloting same-day delivery for sellers Social Media Integration • Close integration with Facebook, Twitter • Exploring own social media channel • Integration with Facebook, Twitter • Introduced own social media concepts, such as Group Gifts and eBay Go Together Mobile Integration • Limited for automotive parts • Leader in mobile commerce • eBay Motors app has integrated advanced features, such as augmented reality, ability to shop for parts DIY Support • No video tutorials for DIY repair • Video-sharing driven by users Enthusiast Appeal • No dedicated community, blogs or social media avenue for automotive enthusiasts • eBay Garage features more than 100,000 automotive enthusiast profiles • Allows image sharing, profile following Seller Perception • Fee structure considered prohibitive • Competes with own sellers • Fee structure perceived as prohibitive • Regarded as collaborative as eBay does not sell own products
    • 15. 15 Customized Fulfillment Will Emerge as Key Differentiator Marketplace providers will dominate in delivery times and cost; traditional participants must develop capabilities to compete Shipping Strategies Same-Day Delivery Source: Frost & Sullivan analysis. Locker Boxes Free Shipping Crowdsourced Delivery Customer Options Click ‘n’ Post Click ‘n’ Collect Click ‘n’ Fit Strategic Value Opportunity to reach global customers and out-of-reach installers without expanding physical presence Convenience value for DIY customers, local installers; opportunity to draw customer into service shop and store Convenience value for DIFM customers, opportunity to draw customer into service shop and store
    • 16. 16 Current Value Proposition • Navigation (directions, POI, traffic alerts) • Safety and security • Roadside assistance • Vehicle diagnostics Current Value Chain • Telematics providers • OEMs • Insurance providers • Roadside assistance providers Telematics: Future Wave of Repair Digitization Telematics and accompanying HMI could potentially transform the vehicle into a dynamic mobile store and a platform for advanced customer management Expansion in value proposition to include new features • Vehicle prognostics, remote repair • Location-based parts shopping, promotions • In-vehicle maintenance package and parts purchases Future Value Chain Expansion in value chain to include new participants • Parts suppliers • Independent service shops • Parts distributors and retailers Future Value Proposition Current Revenue Models • Consumers—Subscription fees • Business—Usage fees Future Revenue Models • Consumers—Subscription fees, parts and service revenue, remote repair revenue • Business—Usage fees, revenue sharing, advertising revenue Preventive maintenance through diagnostics reports value proposition for aftermarket Vehicle HMI becomes a new touch point for parts and service sales Source: Frost & Sullivan
    • 17. 17 Aftermarket DIY Telematics Solutions Aftermarket vendors are responding with expensive DIY options to combat threat from OEMs; possible deployment in partnership with parts distributors, retailers and service shops Delphi OBDII Audivox Car Connection Automatic Link Device Cost $250 $170 $70 (not yet in the market) Installation Fee $35 $19.95 None Free Trial 2 Years None None Connectivity Embedded- Verizon Tethered- User Data Plan Tethered- User Data Plan Subscription $5/Month $9.99/Month or $89.95/Year No Subscription Fee Apps Android/Apple App Apple/Android App Apple Only Driving Behavior Analysis Eco-driving Scores Automatic Crash Assistance Remote Vehicle Access, e.g. Lock/ Unlock Teen Tracking Features, e.g. Geo-fencing Vehicle Health Reports, periodically Auto Diagnostics Fault Detection and Actions Distracted Driving Minimization
    • 18. 18 Five Big Predictions for Automotive Parts eRetailing 2 Direct eRetailing (sales through own Website) will grow from the current 20% to 25% of all automotive eSales by 2020. Marketplace merchandise volume (sales through aggregator websites such as Amazon and eBay) will drop from 75% in 2012 to about 70% in 2020. 3 Independent automotive eRetailers will lose their dominance because of weak brand equity. Biggest gainers will be traditional automotive parts retailers and OES participants. 1 Automotive parts eRetailing will cross the $16 billion mark by 2018 and will account for nearly 10% of total aftermarket sales by 2020. Source: Frost & Sullivan 4 The largely untapped DIFM segment will be targeted through digital sales of minor maintenance packages in the medium and long terms. 5 Growing penetration of connectivity and telematics in vehicles will necessitate multi-channel digital strategies and will facilitate the emergence of new revenue streams such as location- based parts sales and remote repair, which will ultimately boost parts eRetailing.
    • 19. 19 Next Steps Develop Your Visionary and Innovative Skills Growth Partnership Service Share your growth thought leadership and ideas or join our GIL Global Community Join our GIL Community Newsletter Keep abreast of innovative growth opportunities Phone: 1-877-GOFROST (463-7678) Email: myfrost@frost.com
    • 20. 20 Your Feedback is Important to Us Growth Forecasts? Competitive Structure? Emerging Trends? Strategic Recommendations? Other? Please inform us by ―Rating‖ this presentation. What would you like to see from Frost & Sullivan?
    • 21. 21 http://twitter.com/FS_Automotive Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare, and Twitter http://www.facebook.com/FrostandSullivan http://www.linkedin.com/companies/4506 www.linkedin.com/groups?gid=4480787
    • 22. 22 For Additional Information Jeannette Garcia Corporate Communications Automotive & Transportation (210) 477-8427 jeannette.garcia@frost.com Kumar Saha Senior Industry Analyst Automotive & Transportation (416) 495-2688 kumar.saha@frost.com Stephen Spivey Program Leader Automotive & Transportation (210) 247-3845 stephen.spivey@frost.com Brian Drake Vice President, Sales Automotive & Transportation (248) 836-8260 brian.drake@frost.com

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