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New business models like eCommerce and service aggregation set to disrupt traditional supplier-distributor partnerships

The automotive aftermarket in North America is transforming as distributors and retailers look beyond the region and Europe to newer markets, build more comprehensive portfolios, embrace omnichannel sales strategies, and explore new business models. As revenues in the do-it-yourself (DIY) / eRetail and the do-it-for-me (DIFM) segments increased from $18.7 billion to $21.0 billion and from $17.9 billion to $19.9 billion, respectively, over the 2014-2018 period, retailers will focus on improving revenue generation from both segments.

Meanwhile, sourcing strategies and retail pricing structures are likely to be affected by trade deals with Mexico and China. New business models and revenue streams are being tested by traditional retailers and distributors in partnership with service marketplaces like Openbay, and mass merchants like Walmart.

Retailers are confronting the still niche but gradually increasing threat posed by eCommerce competitors like Amazon, who are targeting the DIY channel and launching their own private labels. Private labels are viewed as being crucial to helping established retailers and eCommerce companies gain margins, while supporting a wider range of prices and options for in-store and ePortal platforms. As retailers move to offer private labels on more complex products like sensors and components, brand offerings from national and established OE suppliers will take a hit.

Simultaneously, pure retailers are poised to increasingly embrace online-to-offline (O2O) approaches as they grow their DIFM businesses by connecting technicians, shops, and owners.

As such change unfolds, Frost & Sullivan’s Competitive Profiling of Key Aftermarket Distributors and Retailers in North America, 2018 benchmarks the performance of key aftermarket distributors and retailers in North America—National Automotive Parts Association (NAPA), AutoZone, Inc., Advance Auto Parts,O’Reilly Auto Parts,Canadian Tire Corporation, Limited, Uni-Select Inc.and Walmart Inc.—using parameters like retail/distribution networks, partnerships and acquisitions, private labelling, financials, and supply chain.

Four Important Mega Trends to Impact Aftermarket Retail

Over the next decade, aftermarket retail and distribution will be profoundly impacted by four important Mega Trends: eCommerce and eRetail, eMobility, telematics and prognostics, and service marketplaces. Retailers and distributors will have to be agile and responsive to these Mega Trends, if they are to retain their competitive edge.

As DIYers increasingly move online, aftermarket stakeholders will need to adopt eCommerce and digital strategies. With eMobility picking up pace, participants will need to equip themselves with the resources and skills required to meet the repair and refurbishment demands of the first wave of battery electric vehicles (BEVs) from 2025 onwards. Meanwhile, real-time prognostics are likely to route demand for parts to stores. And finally, service marketplaces will become important as stakeholders connect vehicle owners to technicians/shops, enabling digital DIFM.

In addition to these Mega Trends, a raft of political, economic, social, technological, legislative and environmental trends will also impact the competitive strategies of aftermarket stakeholders.

Uncertainty in political policy making has translated into unpredictability in global expansion and sourcing strategies. This is likely to motivate retailers to focus on domestic investments in the short term. Imports will be affected by trade agreements with Canada, Mexico, and China, with ripple effects felt on parts prices and market competition.

As the use of electric vehicles (EV) increases, retail and distribution portfolios are likely to embrace EV batteries, chargers, and related accessories. In keeping with the technology-driven shifts in vehicle design and architecture, retailers and distributors are likely to expand their product portfolios to cover electronics and sensor-based replacements.

Future Outlook

By 2025, eMobility and autonomous cars will result in electro-components edging out sensor-based and electronic components that currently make up the majority of the distribution mix. Simultaneously, ECMs, EV components, and sensors will displace mechanical parts as the main parts supplied.

Consolidation has been a big theme among retail chains and smaller garages and workshops. Over the next 6-7 years, the focus will shift towards eRetail and online stores even as retail (DIY) stores get downsized.

Currently, market participants tend to be reactive, using IoT based real-time tracking and geo-location for asset (vehicle) and inventory tracking. This will cede way to a more proactive approach, using AI based predictive logistical models that improve parts-replenish capabilities and supply chain efficiencies.

Traditional business models are being eschewed by retailers who have started engaging with eCommerce start-ups and service aggregators to focus on the DIY segment. Conventional channels of distribution will be disrupted in the future as online channels become increasingly integrated with offline installations.

Political and legislative considerations will motivate distributors and retailers to invest in emerging aftermarkets, such as Mexico and Brazil. Cost factors will also play an important part in driving the shift, as participants look to cheap labor and supply chain advantages presented by these nascent markets.

Aligning with the Demands of eMobility and Autonomous Vehicles

Continued competitive success will hinge on distributors and retailers understanding how eMobility and autonomous vehicles will impact their business. In anticipation of the more widespread use of such vehicles, they will need to boost the availability of related electronic components and sensor-based applications in their distribution/retail outlets.

Retailers should also focus on leveraging the digital disruption triggered by eCommerce giants, while recognizing how service aggregators and direct supplier sourcing models can derail traditional buying groups and distribution companies. eCommerce and service aggregators will ensure that distributors keep pace with rapid technological change and effectively cater to the growing DIY consumer base. Suppliers are already creating portals in order to directly access retailers and consumers.

For more information on Competitive Profiling of Key Aftermarket Distributors and Retailers in North America, 2018, please write to Anuj Monga, Research Manager – Aftermarket, Automotive and Transportation, at anujm@frost.com

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