The O’Reilly Business Model- How Does O’Reilly Auto Parts Make Money?

Executive Summary

O’Reilly Auto Parts is an aftermarket automotive parts retailer servicing a large majority of car makes and models.

O’Reilly makes money via product sales. O’Reilly’s operates on a traditional retail business model with brick and mortar stores supplemented with a strong online presence.

Founded in 1957, O’Reilly’s aggressive and strategic store growth makes it the third largest auto parts retailer. The company went public in 1993 and shows signs of increasing its international presence pending future success in its first forays into the Mexican market.

What is O’Reilly Auto Parts?

O’Reilly Auto Parts is a brick and mortar automotive parts company with a growing online presence that sells auto parts to customers throughout the United States, not excluding Hawaii and Alaska.

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The company offers new and re-manufactured auto parts for most makes and models. Customers who come into their stores can browse general car categories including fluids (Oil & filters, power steering, coolant etc,) batteries, paint care, tools, and automotive accessories.

O’Reilly’s offers specialized parts for your car’s powertrain available behind the counter including distributors, axles, fuel pumps, shock absorbers etc.

Most O’Reilly stores offer value-added services including oil disposal, battery and alternator testing, wiper blade installation, drum and rotor resurfacing, check engine light checks and a loaner tool program.

Unlike smaller independent auto parts stores, O’Reilly’s has its own private label brand of mostly fluids including power steering, oil, brake fluid, and fuel system cleaner.

The company owns and operates 28 distribution centers strategically placed around the United States.

In addition, local stores, with their own fleet of delivery trucks, leverage other nearby stores to fulfill customer needs for a part they might not have on hand.

More importantly, O’Reilly Auto Parts Catalog is accessible online by visiting their website or downloading their mobile app. This enables their customers to check on inventory before making a trip to the store. Customers can also purchase products, opting to have it shipped to their home.

O’Reilly Auto Parts company history

O’Reilly Auto Parts, headquartered in Springfield, Missouri, was founded in 1957.

O’Reilly traces its roots well before the turn of the 19th century back to 1849. Micheal Byrne O’Reilly, true to the company’s name, was an Irishman fleeing a growing potato famine that plagued Ireland a few years back.

The O’Reilly family settled in St.Louis, Missouri. His son, Charles Frances O’Reilly, after graduating from college, became a traveling salesman for an already established auto parts store.

As Charles travelled the Missouri area around the 1920s by train, he recognized the growing need for auto parts in key Missouri areas.

Thanks to the Ford’s Model T and the growth of the affordable automobile, car ownership was on the rise and would become the dominant form of middle-class transportation

Charles’ Francis’s son, Charles H (Chub) O’Reilly, joined his Dad working as management for the Link Motor Supply company.

When a reorganization and planned retirement for Charles Francis was in Link’s upcoming management shuffle, the O’Reilly’s took matters into their own hands and started their own company, O’Reilly Automotive Inc.

Dec 2, 1957 marked Day one with their first store in Springfield, MI.

By 1975, O’Reilly’s had nine stores and enough sales volume to justify opening a 52,000-square foot facility servicing Southwest Missouri.

1978 marked a turning point for the company, implementing a dual market strategy supporting two segments now known as the DIY (do it yourself) market segment and the Do it for me (DIFM) starter professional.

1993 saw O’Reilly turn public, listing in the NYSE with ORLY, with a $17.50 per share IPO. At the time of this writing, ORLY is trading above $600 a share.

By then, O’Reilly had already opened its 100th store and thus began a rapid expansion of key mergers and acquisitions listed below.

• 1998- Merged with Hi/LO Auto supply adding 182 stores in the Texas/Louisana area.
• 2001- Purchased Mid-state Automotive distributors adding 82 stores.
• 2005- Purchased Midwest Automotive Distributors adding 72 stores.
• 2008- Acquired CSK Auto adding a whopping 1,273 stores. CSK’s sub-brands included Checker Auto Parts, Schucks Auto Supply, Kragen, & Murray Discount Auto Stores.
• 2012- Purchased VIP Parts, Tires and Services adding 56 more stores.
• 2016- Acquired Bond Auto Parts, adding 51 stores
• 2018- Acquired Bennett Auto Supply adding 33 stores
• 2019- Acquired Mayasa Auto Parts venturing into Mexico adding 20 stores and over 2,000 independent jobber locations.

By 2020, O’Reilly’s has over 5,600 stores in over 47 states.

By the end of 2020, O Reilly opened its first international prototype store, ORMA Auto Parts in Zapopan, Mexico setting up O’Reilly’s continued expansion in North America.

With the onset of the COVID Pandemic, most auto parts retailers suffered some type of loss as global supply chains readjusted to reduced work hours and management mostly working from home.

Thanks to a combination of new car shortages, rising prices of used cars, and middle-class Americans tightening their budgets, the DIY automotive space has seen a resurgence that has benefited O’Reilly, earmarked as essential services.

O’reilly’s cites the increasing average age of vehicles on the road being out of warranty and increased time of the American consumer at home to be a key combination that drove increased sales during the 2020’s COVID-19 pandemic.

Until this chip shortage sorts itself out, American consumers continue to rely on DIY Auto parts stores like O’Reilly, to service their cars.

How does O’Reilly make money?

O’Reilly makes money via automotive aftermarket parts sales and enhanced services and programs geared towards both the DIY’er and the professional automotive technician.

Thanks to O’Reilly’s network of over 5,600 stores,28 domestic distribution centers and 362 Super Hub stores, O’Reilly can cater to an in-person customer or an online shopper.

Product Sales

Sales of aftermarket auto parts make up the bulk of O’Reilly Auto Parts’s revenue. An average U.S. store carries over 22,000 SKUs backed by their distribution centers, each one, on average, with over 159,000 SKUs.

O’Reilly’s sheer amount of choice caters to a wide variety of consumer. O’Reilly’s carries premium brands like AC Delco, Armor All, Bosch, and Pennzoil but also produces its own proprietary brands with three levels of quality and value with Good, Better, & Best.

DIY’ers often choose ‘Good’ while Professional Service Providers prefer ‘Better’ and ‘Best’ (higher quality products that will support their business.)

O’Reilly’s partners with 730 key suppliers, purchasing in bulk and makes money when that auto part is sold at a profit.

Key to this strategy is identifying emerging trends and buying them in bulk at the right price.

Aiding in identifying emerging trends is O’Reilly’s own loyalty program dubbed O’Reilly O’Rewards. Members are able to earn points towards in-store credit and get exclusive offers and discounts.

In return, O’Reilly’s can compile first-hand data of what’s in demand and can adjust its purchasing, marketing, and discounts to customers accordingly. Unredeemed rewards contribute several million, annually, to O’Reilly’s overall annual revenue.

O’Reilly Revenue and Valuation

For Fiscal year 2020, O’Reilly generated $11.6 billion in revenue. This represents a 14.8 percent increase from the year prior ($10.1 billion).

Today, O’Reilly has a market capitalization of over $41.95 billion.

Who Owns O’Reilly Auto Parts?

O’Reilly’s CEO is Greg Johnson, the company’s third CEO. As part of his compensation package, Johnson owns 4,892 shares of ORLY worth over $5.5 million.

O’Reilly’s biggest current shareholder is asset management group “The Vanguard Group, Inc.” with an ownership stake of 7.31 percent.

David O’Reilly, son of co-founder Chub O’Reilly, according to WallMine, owns 37,439 shares worth over $194,871,709 over 18 years.

Other major shareholders include BlackRock (7.46 percent), State Street Corporation (4.11 percent), JP Morgan Chasef & Company (3.54 percent), Price T.Rowe Associates (2.74 percent), and Principal Financial Group (2.54 percent).

Only 98.55 percent of the company’s shares are tradeable (free float) while the rest remains in private ownership.