Advance Auto Parts, Inc. Business Information, Profile, and History

Company Perspectives:

It is the Mission of Advance Auto Parts to provide personal vehicle owners and enthusiasts with the vehicle related products and knowledge that fulfill their wants and needs at the right price. Our friendly, knowledgeable and professional staff will help inspire, educate and problem-solve for our customers.

History of Advance Auto Parts, Inc.

Advance Auto Parts, Inc. is the second largest auto parts and accessories retailer in the United States, trailing only AutoZone. The Roanoke, Virginia-based company operates more than 2,400 stores located in 38 states, Puerto Rico, and the Virgin Islands, serving both the "do-it-yourself" customer as well as commercial accounts. Further, it is a partner in PartsAmerica .com, an online auto parts retailing venture. A public company traded on the New York Stock Exchange, Advance became a member of the Fortune 500 in 2003.

Founding the Company in 1932

The Advance chain was founded by Arthur Taubman, the son of Austro-Hungarian immigrants. Born in 1901 in Astoria, New York, he grew up in Manhattan's impoverished Lower East Side. As he later joked, he grew up forever hungry and food became a prime motivation for achieving success. At the age of 13 he dropped out of school to take a job in a department store, where he gained valuable retailing experience. Still a teenager, he served in the Navy during World War I. When he returned from his stint in the service, he became partners with one of his brothers in a small retail chain called Taubman's, selling both auto parts and household goods. The business, based in Pittsburgh, prospered through the 1920s and spread as far north as Boston and as far south as Washington, D.C., but it could not survive the onset of the Great Depression and ultimately failed. Living in Baltimore in 1932, Taubman learned of a struggling, three-store, Roanoke-based auto parts business called Advance Stores that was for sale. It had two stores in Roanoke and another in Lynchburg, Virginia. In order to help him raise the down payment to buy the chain, his wife Grace offered her wedding ring, which he then pawned along with his own Masonic ring. Taubman quickly succeeded in turning around the retail chain, despite having no more than a grade school education; his business knowledge was the result of reading books and practical experience. According to company lore he ran Advance by following a four-point philosophy: provide value to customers; earn a reputation for honesty and integrity; ensure repeat business by providing quality merchandise and good customer service; and treat employees like family.

The difficult economic conditions of the 1930s helped to spur Advance's early growth. To put people to work the federal government funded major road paving projects, prompting motorists to drive their cars, which at the time required far more maintenance than contemporary models. For instance, oil required changing after only 500 miles, while brakes lasted little more than 10,000 miles and tires were only good for approximately 7,000 miles. Moreover, the poor economy caused more people to hold onto their cars longer, resulting in greater business for auto parts retailers like Advance. After a decade of owning Advance, Taubman had grown the chain to 21 stores. With the United States' entry into World War II, however, Advance was forced to adjust, due to a shortage of raw materials like rubber that limited the amount of auto parts that could be produced, as well as gas rationing that dramatically cut back on car usage and the need for maintenance. As a result, Advance Stores began to stock a wide variety of housewares and appliances, items it would continue to sell even after the war was over. It was also during World War II that Arthur Taubman made his mark in another way. He used his position as a successful businessman to help some 500 Jews escape the Holocaust of Nazi Germany by signing immigration papers, claiming that they were cousins and promising financial support (which never became necessary). When asked by government officials about his unusually high number of cousins, Taubman reportedly commented, "Every Jew who is in danger is my first cousin." Taubman would later become a key player in the racial integration of Roanoke, and a major philanthropist in the community.

Advance Stores added to its mix of products in the 25 years that followed World War II. Not only did the chain sell auto parts, it installed items such as tires, batteries, and seatcovers at service bays that became part of the stores. According to the Roanoke Times, "At a store opening in Roanoke in 1961, the company touted its sales of lawn mowers, picnic equipment, lawn and garden tools, radios and phonographs, television and appliances, sporting goods, fishing tackle hardware, bicycles and accessories. ... During Christmas, shoppers could buy toys." By the time Taubman was ready to retire and turn over control of the company to his son, Nicholas, the Advance chain totaled 54 stores.

Focusing on Auto Parts in the 1970s

Nicholas Taubman was 34 years old and a vice-president of the company when his father gave up control. Unlike his father, he had the opportunity to receive an excellent education. He attended a private prep school in Mercersburg, Pennsylvania, and later the Wharton School of Finance and Commerce at The University of Pennsylvania. He told the press at the time he took over for his father that he expected the chain to one day be 100 units strong in its market, which now included Virginia, the Carolinas, and a western section of Tennessee. For the next few years Taubman pursued this modest goal, then began to take a hard look at the business. As reported by the Roanoke Times, "One day in the mid-1970s, Nicholas Taubman said he took a critical look at one of the company's North Carolina stores. On display out front were garbage cans, a kid's gym set, a tiller and housewares. He tried to think of how customers viewed Advance Stores. He couldn't think of the company's niche. 'Everything I'm looking at I can buy (somewhere else) with more service, more variety and cheaper,' Taubman said to himself. So he began eliminating items that didn't sell well. During the transition, the company tried various products and brands--stoves, refrigerators, furniture. 'There were far more failures than successes,' Taubman said."

In 1978 the company changed its name from Advance Stores to Advance Auto and took other steps to become a high-volume retailer of auto parts. Aside from discontinuing consumer products and closing down its credit department, Advance also eliminated its service department. To better serve its new core market, the do-it-yourself car repairman, the company in 1982 introduced its PDQ (Parts Delivered Quickly) system, which promised delivery of some 25,000 auto parts within 24 hours. (Today it includes more than 250,000 items.) When the transition to auto parts was complete the company changed its name again, in 1985 becoming Advance Auto Parts.

In 1985 Taubman reached his original goal of 100 stores, but by now he began to envision the creation of a much larger company. To help him lead Advance he named longtime employee Garnett Smith, who had risen through the ranks, as president of the business, while he took on the title of chief executive officer. Together they launched an aggressive expansion program, so that by 1991 the chain included 211 stores, making it the country's eighth largest auto parts retailer. By the end of 1993 the chain included 352 stores located in eight states, and was now one of the fastest growing auto parts retailers in the country. A year later the company's founder, Arthur Taubman, died in Boca Raton, Florida, while the chain continued to expand at an accelerated clip. Although the clear preference was to build new stores, in early 1995 Advance grew by external means, buying 30 Georgia stores of Columbus, Ohio-based Nationwise Auto Parts, bringing the total number of Advance units to more than 500. By the middle of 1996 Advance owned 660 stores, generating an estimated $808 million in annual revenues. At the time it was ranked as the second largest auto parts chain, trailing only AutoZone with its 1,300 stores and $1.8 billion in sales. However, with the industry rapidly consolidating, the rankings behind AutoZone would fluctuate over the next several years.

In addition to managing a far-flung chain, Taubman faced the question of family succession. Neither of his two children, daughter Lara or son Marc, were apparently interested in running the family business. Marc, who had been working for the company, quit and moved to New Mexico to run a ranch he owned. In February 1997 Taubman retained Goldman Sachs to either sell the company or arrange to take it public, but by May the business was taken off the block. In September 1997 Taubman stepped down as CEO in favor of Smith, although he stayed on as chairman of the board. A deal to sell Advance was finally reached in April 1998, one that would ensure the business would stay in Roanoke, an important consideration to Taubman. The private investment firm of Freeman Spogli & Co. agreed to pay $351 million for an 86 percent stake in the company, with the Taubman family retaining the balance. Taubman also stayed on as chairman and Smith continued to manage the day-to-day affairs of the business. Taubman told the press at the time, "If I were 50, I wouldn't have sold it. You see yourself running out of time. There are some other things you want to do besides working seven days a week."

Acquiring Western Auto in 1998

In August 1998 Advance took its first major step under its new ownership arrangement when it acquired Western Auto from Sears, Roebuck & Co., paying $175 million in cash and a 40 percent stake in Advance. Of the 590 Western Auto stores acquired, 98 were closed because they were either unprofitable or their markets overlapped with Advance outlets. As a result of the acquisition, sales for 1998 totaled $1.22 billion, but Advance posted a loss of $2.2 million, the first loss since Arthur Taubman pawned his wife's ring to launch the business. The industry continued to consolidate rapidly, with sales in the do-it-yourself market remaining flat and essentially forcing the majors to fight for even more of a market share in order to achieve acceptable margins.

At the end of 1999 Smith retired after 43 years with Advance, citing a desire to spend more time with his ailing wife, although he remained on the company's board of directors. He was soon replaced as CEO by Lawrence P. Castellani, who had a wealth of executive experience, but in groceries, not auto parts. Having started out as a stock boy for a Tops Markets supermarket in 1962, he helped to build the small grocery chain into a large regional player that in 1991 was bought by Dutch giant Ahold, which named him CEO. He took over Advance in the midst of digesting the Western Auto acquisition. At the same time, the chain was launching an Internet business called PartsAmerica, a joint venture with CSK Auto, a major force in auto parts in the western United States, and Sequoia Capital. The business plan called for the two retailers to use their combined 2,500 stores, 3,000 delivery trucks, and dozens of distribution centers to offer same-day delivery of parts to all 50 states, Puerto Rico, and the Virgin Islands.

The Advance balance sheet returned to the black in 2000, and by 2001 was again positioned to grow the chain through acquisition. In April of that year it bought Carport Auto Parts, a 51-store regional chain located in Alabama and Mississippi. A more important deal was struck in November 2001 when Advance acquired Discount Auto Parts, Inc., a southeastern chain operating 577 stores with some $660 million in annual revenues. Advance paid approximately $520 million in cash and stock and assumed debt of approximately $267 million in the transaction. As a result, Advance now owned more than 2,400 stores located in 38 states, a business capable of generating more than $3 billion in annual sales. Moreover, by buying Discount, Advance's holding company, Advance Holding Corp., became a public company, which began trading on the New York Stock Exchange in November 2001. Once again, however, Advance faced the challenge of assimilating a significant acquisition without losing momentum in a highly competitive industry. The transition proceeded smoothly enough so that by the summer of 2002 Advance was able to make yet another acquisition, albeit on a much smaller scale. It bought 55 stores of the Maryland-based Auto Trak Parts chain, which had lapsed into bankruptcy. By paying $16 million for inventory and fixtures and assuming existing leases, Advance was able to pick the bones of the chain, which numbered 196 stores a year earlier when the company filed Chapter 11 bankruptcy and had since dropped to just 78 stores. For a modest cost Advance increased its presence in the key market of Washington, D.C.

In November 2002 Sears announced that it planned to sell the 8.4 million shares it received in Advance for the Western Auto chain. A few weeks later a secondary offering was held in order to sell the Sears stake in the company, which now amounted to 24 percent, as well as to raise additional cash for Advance to be used to pay off some of the debt it had accumulated in its rapid ascent in the industry.

By the start of 2003 it appeared that Advance had successfully digested the Discount acquisition. The company closed 130 of the stores, which overlapped with Advance outlets. Of the ones that remained, 164 Discount stores were converted to the Advance Auto banner, while in Florida, where the Discount name retained a strong resonance with consumers, some 400 stores adopted the name Advance Discount Auto Parts. Also at the start of 2003, Advance launched a test program selling insurance at several stores, with the possibility of expanding the program if it proved to be successful after a six-month trial. Later in the spring, the company reached a significant milestone when it was announced that it made the Fortune 500 list, placing at number 466 with sales of $3.3 billion in 2002. (AutoZone in the meantime ranked 314 on the strength of $5.4 billion in sales.) It was a fitting sendoff for Nicholas Taubman and Garnett Smith, who had earlier in the year resigned from the company's board of directors after decades of devotion that built a small, obscure auto parts and household goods chain into the second largest auto parts retailer in the United States.

Principal Subsidiaries: Advance Stores Company, Incorporated.

Principal Competitors: AutoZone, Inc.; Genuine Parts Company; The Pep Boys--Manny, Moe & Jack; Wal-Mart Stores, Inc.

Chronology

• Key Dates:
• 1932: Arthur Taubman acquires a three-store chain to launch the business.
• 1969: Arthur Taubman retires and son Nicholas Taubman assumes control.
• 1978: Advance Stores changes its name to Advance Auto.
• 1985: Advance Auto focuses on auto parts exclusively, becoming Advance Auto Parts.
• 1998: The company is sold to Freeman Spogli & Co.
• 2001: Discount Auto Parts is acquired.
• 2003: Advance makes the Fortune 500 list.