Are auto parts stores profitable? This is a question that many business owners are asking themselves as the automotive aftermarket sector continues to grow. The answer, however, is not black and white. Many factors need to be taken into account when determining the profitability of auto parts stores. In this article, we will take a closer look at the different factors that influence automotive aftermarket profitability. We will also discuss the current market conditions and how they affect the sector.
Automotive Aftermarket Sector Trends and Statistics
One of the most important factors determining the profitability of any business is the state of the industry it’s operating in. If the sector is shrinking, then all companies operating in it will suffer. If, on the other hand, the industry is expanding, its organizations will stand a far better chance of turning a profit.
With that in mind, it’s important to take into consideration the fact that the aftermarket for automobiles in the United States was worth more than 325 billion dollars in 2021. Despite the worldwide COVID-19 pandemic, which slowed growth, the market is anticipated to reach 372 billion dollars by 2024. Global Market Insights Inc. predicts that the global automotive aftermarket will reach $855 billion by 2028. The growing need for maintenance and scheduled servicing to extend an aging car’s lifespan is a driving force behind the growth of the industry.
The automotive aftermarket sector is anticipated to see rapid growth in the coming years, thanks to growing vehicle accidents and rising demand for modified vehicle components. Product demand is expected to rise as a result of simple access to automobile replacement parts and the development of eCommerce platforms. Service providers are also extending their distribution networks in order to meet the industry’s growth.
The Automotive Aftermarket from Do-It-Yourself (DIY) is expected to reach USD 237 billion in revenue by 2028. Consumers’ growing demand for modified cars and the low cost of DIY products are some of the factors driving the market growth. New and easy-to-use repair kits are being offered by a variety of industry participants, which is propelling market growth. An increase in per capita income and a rise in the sale of new and old automobiles are also contributing factors. Furthermore, readily available at lower rates at discount department stores will contribute to market demand.
With an expected increase in the average number of miles driven every year, the aftermarket industry in North America will grow. The United States had the most net growth in the sector in 2021. By 2028, it is anticipated that North America will have a market share of over 30% and a compounded annual growth rate (CAGR) of more than 6%. Historically, the automobile parts business has grown at about a 3.5% to 3.9% yearly rate. Auto parts eCommerce, on the other hand, is expected to grow at a 20% CAGR over the next few years.
The North American online auto parts industry will be worth approximately $26.1 billion in 2022, up by more than 40% from 2020. In 2022, the light-duty vehicle aftermarket will have a market value of about $341 billion. The whole automotive aftermarket/auto care business, which includes medium and heavy-duty trucks, will be worth around $439 billion by the end of 2022.
The increasing power of digital influence on the automotive aftermarket is worth noting, particularly as it relates to auto parts sales. Digital has an influence of over $174 billion in sales throughout all distribution channels, including online and physical stores. By 2025, the digital impact on auto part retail will be worth almost $200 billion. The automotive sector is expanding, with more hybrid and electric vehicles on the road every year. Online shopping is on the rise, self-driving cars are on the near horizon, and Amazon and eBay continue to grow.
Other Factors Determining Auto Part Profitability
Aside from the state of the automotive aftermarket sector, there are a few other key factors that auto parts store owners need to be aware of to ensure profitability. These include:
- The Cost of Goods Sold (COGS) – This is the direct cost of the auto parts that are being sold and includes the cost of materials, labor, and shipping. Depending on the type of auto parts being sold, the COGS can vary significantly.
- Operating Expenses – This is the indirect cost of running the auto parts store and includes items such as rent, utilities, advertising, and salaries. Depending on the type of auto parts store, be it brick-and-mortar, purely online, or a combination of both, operating expenses can also vary by a large margin.
- Pricing – Auto parts stores need to strike a balance between competitive pricing and making a profit on each sale. The sales price needs to be high enough to cover the COGS and other operating expenses but low enough to attract customers.
- Sales Volume – The number of auto parts that are sold will directly impact profitability. While this factor may seem obvious, the sales volume’s impact on profitability differs based on the other three factors mentioned above. Basically, the more you sell, the higher your expenses will be. This means that auto parts stores need to have a good handle on their target market and what type of auto parts they are selling in order to maximize profitability.
- Competition – There is a lot of competition in the auto parts industry, both from other auto parts stores and from auto parts manufacturers. To be profitable, auto parts stores need to find a way to stand out from the competition and attract customers.
- Geographical Location – The location of the auto parts store can also impact profitability. Auto parts stores in rural areas may have less competition, but they also have a smaller customer base. Auto parts stores in urban areas may have more competition, but they also have a larger customer base.
- Marketing – Auto parts stores need to have a good marketing strategy in order to attract customers and generate sales. The type of marketing that is most effective will vary depending on the kind of auto parts store and the target market.
- Business Organization – How an auto parts store is organized can have a big impact on profitability. For example, auto parts stores that are part of a franchise may have to pay royalties and fees to the franchisor, which will eat into profits. On the other hand, auto parts stores that are privately owned and operated may have more flexibility in terms of how they are run and may be able to keep more of the profits. Likewise, if auto parts stores focus more on selling online, they may be able to save on costs such as rent and utilities.
How Profitable Are Auto Parts Stores?
The auto parts industry is currently in a good position and is expected to continue to grow. Auto parts store owners need to be aware of the different factors that can impact profitability, such as the cost of goods sold, operating expenses, pricing, sales volume, competition, geographical location, marketing, and business organization. If auto parts store owners can effectively manage all of these factors, they should be able to achieve profitability.
Auto parts stores are a great way to generate income and create a business. It is important to remember that there are many different factors that go into making an auto parts store profitable. Minimizing expenses should be a priority, but auto parts store owners also need to focus on generating sales and attracting customers. With the right strategy, auto parts store owners can achieve profitability and success.