Article > Opinion

Big Chains Get Bigger

By Jon S. Owens

Our annual review of the top 20 Super Stores reveals that much maneuvering and positioning has gone on in the past year and will continue in ’08.

Once again this month we conduct our annual review of the top 20 Super Stores in the United States, and once again we find the big chains are continuing to get bigger. While few significant moves were made in ’07, as I write this article we are closely monitoring a major development among two of the top five store chains: O’Reilly’s attempt to purchase CSK. If successful, this will be a key advancement for O’Reilly, not just in store count but (perhaps, more importantly) in geographic coverage and shareholder value.

Throughout its history, CSK has struggled to produce consistent and well-regarded financials. Where AutoZone, Advance and O’Reilly have regularly met or exceeded analysts’ expectations (with rare exceptions, of course), CSK and Pep Boys have plodded through Wall Street’s quagmire of demands while trying to manage their own internal issues and meet their own performance expectations. Each has been vulnerable to takeover. However, CSK has a few unique assets that, in my opinion, make the com-pany an attractive entity.

First and foremost is real estate. CSK, through its extensive store placements across the western United States, has a strong foot-hold in critical metropolitan areas like Los Angeles, San Francisco and Seattle. Even though the country (and these regions in particular) is experiencing slumping real estate values, it is extremely difficult and costly to develop new store locations in these high-rent, store-saturated districts versus purchasing locations that already exist. In addition, CSK has very strong store brands throughout the western states via its Checker, Schuck’s and Kragen stores. O’Reilly has acquired decent-sized retailers before, namely Hi-Lo and Discount. While you could argue that those entities had decent brand recognition in their regions, they were nowhere near the level of the CSK brands in their regions. It will be interesting to see what O’Reilly’s store brand strategy will be if it succeeds in acquiring CSK.

Beyond this major development, other more subtle activities are worth noting, like the emergence of non-U.S.-based ownership on the list. First and foremost is Canada-based Uni-Select, which remained at number 9 this year but had the highest percentage growth (13.1%) of anyone in the top 20. Uni-Select continues to seek out strategic acquisitions, and its controlled growth strategy with a focus on wholesale-oriented WDs and stores appears to be paying dividends.

In somewhat of a more surprising development, Japan-based Autobacs purchased Strauss Discount Auto in April of last year and, in doing so, landed squarely at number 14. It will be interesting to monitor Autobac’s moves from here on as it navigates through the conditions that led to Strauss’ bankruptcy, learns to participate and take advantage of its program group affiliation (National Pronto) and positions itself for continued growth here in the United States. So, while on the surface it may appear that not much has changed among these powerful store groups over the past year, a peek behind the curtain reveals that much maneuvering and positioning has gone on and will continue to take place throughout 2008 — not the least of which may be the big bang of a potential O’Reilly acquisition of CSK. Stay tuned!

In closing, I would be remiss in not recognizing the dedicated service of longtime Counterman Editor Brian Cruickshank. By now you’re aware that this is Brian’s last issue as editor. No one cared more about our dedicated readers than Brian. He poured his heart into every issue, month after month for some nine years in an effort to help you be better at what you do. Brian was a valuable asset not only to this magazine but also to this company and this industry. It was an honor to work with him, and I know he will do wonderful things in his new role with the University of the Aftermarket. I want to publicly thank Brian and wish him great success in all of his future endeavors!

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