Less than 100 days ago I was attending an investors conference hosted by Morgan Stanley a block away from Times Square. The only acknowledgment of COVID-19 was that attendees had to certify that they had not been in Italy or China in the two weeks prior to the conference. Otherwise there was very little social distancing practiced and the presentations were focused on the electrification of the automobile, the innovative models for Vehicles as a Service and the math that explained why CO2 emissions were measured in tons when a gallon of gasoline weighed a few pounds.
Brian Cruickshank, Director of the University of the Aftermarket, led a panel discussion that explored the evolving nature of e-commerce in the aftermarket. In one point, the panelists were challenged to explain why the growth of pure play ecommerce operators had been limited when Brian posed, “On Jan 24, CNBC ran a story about ecommerce and auto parts. I’ll read the lead”
“It is commonly thought to be a terrible time for many brick & mortar retailers. But one segment seems to buck the trends – auto parts.
Yes, dear reader, brick & mortar auto parts operations were a safe investment for the analysts in the audience. Electrification was going to take decades, average vehicle age continued to rise and thanks to a booming economy, miles driven was setting records. Well, now, as I write this, we have sheltered at home for more than two full months, national unemployment is approaching 20%, trillions of dollars of relief and federal stimulus have been approved … and online auto parts sales have grown 40% and more in some categories. Well, I sure didn’t see that coming in February.
The dramatic increase in online sales is offset by the crushing drop in sales at parts stores and service shops. Because we were ordered to stay home, and most of us did, vehicle miles travelled (VMT) is down by 38% - 48% according to Mike Chung, Director Market Intelligence for the Auto Care Association. Despite the lowest gasoline prices in years, the demand for vehicle parts and service reflects the decline in trips to work and school and recreation.
The increase in online sales reflects the safety and convenience that we have all experienced while staying at home. The forecast for the weekend is mild and sunny. Let’s go change some filters and show the car some love for the first time in months. Ordering what we need only takes a few minutes while sitting on the couch watching Motor Trend TV. The Hedges & Company analysis of millions of online transactions tells us that the online revenue from eCommerce transactions for parts and accessories the week of April 26-May 2 had a 67% increase from the first week of March. On the low-end OEM parts sales increased 55% and the leader was in the Powersports category, a revenue increase of 80%.
These numbers are amazing and while no one expects this shift in commerce from bricks to clicks to be permanent, it does represent a forced change in behavior that will last and irreversibly alter the future. Jon Sinclair, president of online retailer Parts Geek.com expressed it this way, “In the last two months we have gained 3-5 years of growth in digital commerce market share”. It stands to reason that once consumers, shops and fleets are exposed to the safety and convenience of online shopping, that behavior will last after the all clear is sounded.
Not all categories of products will benefit equally from this dramatic change. One of the reason cited before the pandemic for why consumers prefer to walk into a parts store was to speak with a knowledgeable counter pro and to physically evaluate the form, fit and quality of the product they wanted to buy. Before dropping a couple hundred dollars on a new alternator, it would be helpful to test the old one and ensure that the replacement was going to last the life of the car.
However, the increased sales that Jon Hedges is seeing online are concentrated more in the performance and accessories categories than in replacement service parts. That might seem counter-intuitive for products that are for the most part, elective and discretionary. Enthusiasts require a lot of information about a product before they put down their well-deserved stimulus money. But the quality and quantity of product images and descriptive content has never been better. And every company that invested in static and 360 spinning images, market copy, features and benefits, and product attributes has been rewarded with increased sales. The data is there to give customers the confidence to buy online.
Just the other day, Marylanders, like myself were permitted to play a round of golf and to put the boat back in the water. A small bit of normal is better than what the past couple of months have been. But until everyone has been vaccinated, facemasks, contactless transactions and social distancing will be the new normal. Online commerce has leaped ahead by years and will likely stay ahead. Businesses with a balance of bricks and clicks will weather whatever market conditions the future holds. As has always been the case, those with the best product content will be in the best position to win.
The only certain thing to say about the future is how dramatically its course has changed. Transportation is essential to our way of life. The aftermarket will keep America rolling. Until we meet again, stay safe, be responsible and remain healthy.
