Advance Auto Parts is slashing its store fleet by more than 700 locations and shuttering four distribution centers, adding to this year's pile of retail closings that are starting to inch toward the COVID-19 pandemic's peak in 2020.
The Raleigh, North Carolina-based auto parts retailer unveiled its dramatic restructuring and store optimization strategy Thursday when it reported its third-quarter earnings. The company's net sales from continuing operations totaled $2.1 billion, down from $2.2 billion in the prior-year period, while comparable store sales decreased 2.3%.
Advance Auto said it plans to close 523 corporate stores and 204 independent locations, a total of 727, starting this year and finishing in the middle of next year. With the move, the retailer — a major player in the more than $150 billion auto aftermarket industry — will exit the entire West Coast to increase its store concentration in its strongest markets. The store closings will result in a loss of sales revenue ranging from $500 million to $800 million for Advance Auto, according to Chief Financial Officer Ryan Grimsland. As of October, Advance Auto had 4,781 stores.
"In August, we began a comprehensive review of asset productivity," Advance Auto President and CEO Shane O'Kelly said on the earnings call. "We made the decision to close certain nonperforming, nonstrategic stores in the U.S. to better position our asset base for long-term sustainable growth."
As part of its three-year turnaround plan, the retailer is also streamlining its supply chain by closing four Western distribution centers. Overall, the company plans to consolidate 38 distribution centers and operate 13 large facilities by 2026, according to officials.
Advance Auto expects to see around $50 million in annualized savings stemming from the job cuts that will accompany its closings. The retailer declined to comment on how many employees will be let go.
Rise in store closings
The fourth quarter has seen an uptick in announced store closings this year as retailers reel from higher costs related to inflation and labor and consumers cutting back their spending. Advance Auto's retail-footprint downsizing news came a little over a week after Franchise Group filed for Chapter 11 and said it was shuttering its American Freight chain, which has over 300 stores. Announced U.S. store closings so far this year have surpassed any full-year total since the height of the COVID-19 pandemic in 2020, according to Coresight Research. As of last week, there were 6,817 closings and 5,396 openings, according to Coresight. There were 9,698 store closings in 2020.
O'Kelly discussed Advance Auto's West Coast retreat on Thursday's call.
"Our four [distribution centers] on the West Coast serve a lower concentration of stores and we would need to allocate significant capital and resources to infill those markets," he said. "We do not believe this would be the best use of our capital and believe that investing in other core areas of the business will help deliver stronger profitability. As a result, we decided to close the four [distribution centers] and associated corporate stores and independent locations in these less dense markets resulting in a complete exit of certain markets on the West."
The objective is "to improve store concentration in our strongest markets to conserve resources and be better positioned to grow in those markets," according to O'Kelly.
"Following the closures, over 75% of our revised store footprint will be in designated market areas where we will have the No. 1 or No. 2 position based on store density," he said. "We expect to execute these closures by mid-2025. ... We expect to collaborate with landlords to exit leased store locations in a reasonable manner to manage the obligations on our balance sheet."
Some new stores
The planned closing represent about 10% of Advance Auto's corporate stores and roughly 20% of its U.S. independent locations, according to O'Kelly.
Even as it shutters some stores, the retailer said it plans to accelerate new store openings in "high-density" markets. It plans 30 new stores in fiscal 2024, but intends to eventually increase that to 100 annually.
"Our real estate team is mapping out opportunities in each market, designing a plan to accelerate new store openings while compressing our opening timeline," O'Kelly said. "Opening new stores is a successful way of growing regional market share and gives vendors the opportunity to grow with us."
As for its supply chain, Advance Auto by 2026 plans to have 13 distribution centers, down from several dozen, each averaging about 500,000 square feet, according to O'Kelly.