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January 13, 2021 10:30 AM

Aftermarket has reasons to be optimistic in 2021

Kathy McCarron
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    LAS VEGAS — The automotive aftermarket has a lot to be optimistic about going into the new year: It is an essential business and it has a history of resiliency amid economic crises.

    "Compared to new vehicles, compared to most other retail sectors, the aftermarket sees much more stable demand. We are essential and we're a great market to be in, rain or shine," Paul McCarthy, president of the Automotive Aftermarket Suppliers Association (AASA), said during the Virtual AAPEX Experience keynote session, Nov. 3.

    The AASA and the Auto Care Association (ACA) co-sponsor the annual AAPEX.

    Vehicle miles traveled and aftermarket sales tumbled last spring due to shutdowns in numerous states, but the aftermarket appears to be making a V-shaped recovery, according to Bill Hanvey, ACA president and CEO.

    "After falling 8.8%, the aftermarket is forecast to grow 11.7% in 2021, on its way to a market size of $341 billion in 2023," he said.

    "Going forward, there is reason for optimism," Mr. McCarthy added.

    "Yes, the new normal may see less white-collar commuting, but we are also seeing around the world a structural shift from public transport to personal driving.

    "People are leaving densely populated areas to areas where life requires more driving," he said, reasoning that if people are commuting less, they can live wherever they want.

    During a panel discussion, Duncan Gillis, CEO of BBB Industries L.L.C., said he expects to see growth in aftermarket replacement parts sales.

    "We are very bullish about 2021. … (Automotive aftermarket businesses) are relatively recession resilient, and we need to take advantage of that," he said.

    "The result of the softer car sales will help us. Most people will continue to maintain their vehicles as opposed to buying new vehicles and I also see miles driven improving," added Greg Johnson, CEO of O'Reilly Auto Parts.

    The panel discussed how the pandemic impacted the aftermarket and running a business:

    Trends that stick

    Most businesses implemented a variety of practices to boost sales and to protect workers and customers during the pandemic, and some of those measures will become part of the "new normal," according to the panel.

    "The e-commerce segment has largely outperformed the rest of the aftermarket recently as consumers are opting for more online delivery due to brick-and-mortar closures and limiting the exposure to the virus. So I believe online ordering will continue to increase," Sue Godschalk, president of Federated Auto Parts, said.

    "I also think do-it-yourself has definitely grown, which is due, in part, to the stimulus (checks from the federal government) and also to the fact that more people are at home due to being self-quarantined."

    The pandemic also has prompted companies to look at the safety and health of their employees under a microscope, she said.

    "We've put many things in place that I think are going to continue into the future, such as the Plexiglas shields and constantly disinfecting the communally touched areas.

    "So I think all of these are going to be permanent and on-going," she said.

    Tom Greco, president and CEO of Advance Auto Parts Inc., agreed.

    "The emphasis on employee safety, health, well-being — the Plexiglas barriers, the social distancing, health screenings — I think they're here for the foreseeable future," he said.

    He also predicted that in addition to a spike in Do-It-Yourself vehicle maintenance, more people are turning to using their own vehicles rather than mass transportation.

    "When people have time on their hands, they have time to work on their cars. All this is positive, I believe, for the aftermarket."

    "The growth that we have seen in e-commerce, most of that growth has been pick-up in store or curbside. I think that is long-term," Mr. Johnson said.

    "I think because we're a society of convenience, you don't put that curbside service out there and then take it away. I think that's a long-term effect we'll see for years to come.

    "It's made us all better companies. I think it's made us focus more on e-commerce, focus more on the entire omni-channel experience. We've had to react swiftly to what's going on."

    Temporary trends

    There are going to be some accommodations brought on by the pandemic that will not stick around, according to the panel.

    "The work that shifted to DIY as a result of the lockdowns and work from home, I think is going to shift back to the more traditional share with DIFM that we're accustomed to seeing," Mr. Gillis said.

    "In time I think we're going to see the remote workplace transition back to the pre-COVID work environment. I think leaders will realize how critical collaboration and teamwork is for their companies' culture.

    "Companies have learned that some of the traveling and spending they were doing pre-COVID was not the best use of resources and I'll be the first to admit that was a great learning for our company.

    'There's really no replacement for human interaction and building relationships.

    "So I would say that trade shows will be back. They will probably be re-imagined a bit, but they will be back," he said.

    E-commerce

    "I think this pandemic has magnified what we were already doing," Mr. Johnson said.

    "Our industry has been focused on e-commerce and omni-channel more so the last few years, than it has in the past. … There is a shift in the ways consumers buy products and that has continued to evolve, but I still feel like our industry is insulated somewhat from that."

    Mr. Gillis noted that e-commerce was already happening in the aftermarket before the pandemic and "COVID-19 put it into overdrive. Companies in every category need to focus on the customer experience and only on the customer experience and rethink on how they engage and serve their customers to meet their expectations."

    Leadership challenges

    "This pandemic has been and remains the largest challenge I've faced in my 30-year business career," BBB Industries' Mr. Gillis said.

    "That's because it attacked the supply chain, attacked manufacturing, distribution, logistics and demand from our customers all at the same time. Because it's attacking the people who make it all work."

    Company leadership found themselves resetting the normal way of doing things in order to get things done and do it more efficiently and effectively, he said.

    He urged leaders to get peer advice before acting and to be patient in making decisions based on data, not fear.

    Mr. Greco urged managers to use innovation to respond to the current environment; communicate often and be out there with their people in the stores; prioritize the health and safety of employees and customers; and persevere, despite people being tired of the pandemic.

    The panel participants also stressed the importance of communicating to employees and customers so they understand why you're doing what you're doing.

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