By Liz Young

Advance Auto Parts is overhauling its supply chain as it seeks to turn around years of shrinking market share and anemic sales growth.

The Raleigh, N.C., company is consolidating distribution centers, closing hundreds of its roughly 4,800 stores and opening larger regional locations as it aims to better compete with rivals such as AutoZone and O'Reilly Automotive. The strategy is meant to simplify the supply chain of the fourth-largest U.S. car-parts retailer as it looks to get the products customers want into their hands more quickly.

"Consolidating the supply chain to create the right part in the right place is an absolute linchpin of what we're doing," Chief Executive Shane O'Kelly said in an interview.

Advance, which serves both do-it-yourself customers and professional mechanics, has increased sales at a much slower pace than its rivals over the past decade. The company last week reported about $2 billion in fourth-quarter sales, down slightly from a year earlier, while its rivals' sales grew in their latest quarters.

The company's shares were trading at $36.49 early Monday, down 85% from an all-time high in November 2021. Shares of AutoZone over the same time have climbed about 82% while O'Reilly's have more than doubled.

Advance's underperformance in recent years drew the attention of activist hedge fund Third Point, which last year struck a deal with the company to add three directors to its board. Under the new board's leadership, Advance sold its wholesale auto-parts distribution business, Worldpac, to Carlyle Group for $1.5 billion in an effort to slim down and improve profitability. Third Point sold its stake in Advance late last year.

The company's leadership also has changed. Longtime CEO Tom Greco retired at the end of 2023 and was succeeded by O'Kelly, a former Home Depot executive who has since undertaken a strategic review of the business.

One of the challenges Advance has faced is that auto-parts retailers have to both carry a wide variety of products and rapidly meet the needs of customers, who are typically looking to fix a problem with their vehicle as quickly as possible. That means figuring out how to position a large number of products within a short distance of customers.

Advance is restructuring its supply chain to flow goods from distribution centers to regional market hubs and on to traditional stores. The hubs carry more products than its typical stores, allowing Advance to quickly send an item out from a hub to a nearby store when needed without having to wait for a shipment from a distribution center.

O'Kelly said Advance studied some of its competitors and found they were able to get a wider selection of parts to customers in a shorter time frame. "This market-hub node helps solve for that," he said. "What it introduces is about 85,000 parts that are available to a store, and hence a customer, inside of the same day."

Advance has 19 market hubs across the U.S. today, with plans to add an additional 10 this year. It aims to have 60 such facilities by mid-2027.

The company also has been consolidating its warehouses and closing stores. O'Kelly said when he took over as CEO in September 2023, he found redundancies lingering in the company's supply-chain network from its $2 billion acquisition of General Parts International a decade earlier.

Advance since then has closed 10 of 38 U.S. distribution centers and said it would shut an additional 12 this year. It plans to have 12 warehouses nationwide by the end of 2026. Advance is also in the process of closing about 500 corporate stores and 200 independently owned locations by the end of March.

The company is resetting its assortment-planning process to move away from restocking stores based on what has sold in the past. Instead, it is carrying more items that may be in demand in a particular region. For example, if there are a large number of trucks in a given area, those stores would carry more truck-specific parts.

"As we make that adjustment, we find that we're able to say yes to a customer when they call and say, 'Do you have that part?'" O'Kelly said.

Many retailers have been working to better manage their inventories since the pandemic, when stock levels whipsawed from product shortages to overstocks. Merchants are trying to make sure they can manage the flow of goods on the fly and have items where they need to be to respond to consumer demand.

Thomas Goldsby, a logistics professor at the University of Tennessee, said planning inventory regionally instead of store-by-store can help a retailer more quickly deliver the goods customers want.

"The name of the game is to provide the right assortment at the store level that routinely meets local demand," Goldsby said. However, "it is unrealistic to have a limitless assortment at the store level, and you are better off pushing that vast assortment further upstream in the supply chain," he said.

Write to Liz Young at liz.young@wsj.com

(END) Dow Jones Newswires

March 03, 2025 13:30 ET (18:30 GMT)

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