AutoZone: Exemplary Capital Allocation - [Business Breakdowns, EP. 36]

I’m Zack Fuss, and today we’re breaking down AutoZone, the leading retailer and distributor of auto parts in the Americas. From the outside, AutoZone might look like a dull business in a mature industry, but once you dive into the details, you quickly realize it’s a hidden gem that echoes the best of Walmart and Costco, earns some of the highest returns on capital in retail, and has a long history of outsized shareholder returns.

 

To help break down the business, I’m joined by Freddie Lait, founder and CIO at London-based Latitude Investment Management. Please enjoy this fascinating breakdown of AutoZone.

 

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

 

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Show Notes

[00:02:58] - [First question] - The general state of the auto part industry and its key players

[00:06:14] - Similar and differing characteristics of AutoZone, O'Reilly, and Advanced Autoparts  

[00:08:04] - The history of AutoZone and how they got to where they are today

[00:12:11] - ESLs involvement with AutoZone and notable moments from that partnership

[00:13:29] - Unit economics, sales per store, how much a store costs, and general features

[00:16:32] - Other retail businesses that rank close to the unit economics of AutoZone

[00:17:43] - How a customer interacts with their business

[00:19:40] - What is being sold that allows them to earn such high gross profits

[00:20:57] - Ways AutoZone has kept their competitors at bay

[00:23:05] - Additional opportunities in their systems that offer competitive advantages

[00:24:18] - Low inventory turnover working in specialty retail merchandise

[00:26:14] - How they manage their stock locally and regionally to ensure a reliable supply

[00:27:36] - Supplier finance mechanics overview for retailers

[00:29:12] - Some of the private label programs they’ve had success with

[00:31:40] - Failure oriented parts and what products inhabit this category

[00:32:58] - How management and integrated culture find opportunities in DIFM

[00:36:08] - Moving up and down the call list and gaining favor as a retailer

[00:38:45] - The threat electric vehicles might pose to Autozone

[00:37:48] - Whether or not an eCommerce giant may penetrate and disrupt this sector

[00:44:58] - Paths AutoZone has taken to return capital to its shareholders

[00:49:21] - COVID’s impacts and detriments to the business

[00:53:04] - What we can learn as builders and investors from studying AutoZone’s story