AutoZone is putting greater emphasis on its domestic market as it enters fiscal year 2027, while slowing the pace of its expansion in Brazil. The auto parts retailer plans to concentrate its efforts on the United States and Mexico, President and CEO Philip Daniele said during the Sept. 22 earnings call.
The company’s supply chain remains a central part of its long-term growth strategy. According to Daniele, AutoZone has completed the expansion of its U.S. distribution center network, including two new distribution facilities and two direct import facilities.
“We have completed the vast majority of the technology upgrades needed to accommodate a much more dynamic and global supply chain,” Daniele told analysts.
Supply chain investments approach final stage
AutoZone’s supply chain investment program, launched in 2020, is now entering its final stages, Daniele said.
The retailer has linked the strengthening of its supply chain directly to its commercial performance. In Q3, Daniele said the company’s supply chain initiatives helped drive an 8.4% year-over-year increase in sales.
AutoZone invested approximately $1.5 billion in capital expenditures this year, with the majority directed toward store growth, hubs and mega hubs. The company expects to invest a similar amount in fiscal year 2027.
The investment has been driven by two priorities: ensuring that existing stores can be supplied efficiently while expanding the distribution infrastructure needed to support future store growth.
“We ultimately had to do some work in our supply chain to make sure we were able to service our base stores that we had and do that well and efficiently, and we needed to expand our supply chain to make sure that we could accommodate what we believe is the right strategy in new store growth,” Daniele said.
Mega hubs become a key part of the replenishment model
AutoZone has significantly accelerated its rollout of mega hubs over the past several years. The facilities have become a core component of the retailer’s inventory replenishment strategy.
In 2024, AutoZone was targeting 200 hubs. The company is now aiming to operate 300 mega hubs over the next three years.
These locations typically carry more than 100,000 SKUs. They provide surrounding stores with access to a broader product assortment and are also designed to support additional sales.
The company’s experience with the network has encouraged it to raise its targets.
“One of the reasons that we moved our targets from 75 to 110, and ultimately to 300 is that when we attach a mega hub to a satellite network, we see an acceleration, and it’s a dynamic that we continue to see,” CFO of Customer Satisfaction Jamere Jackson said during the call.
The logic is straightforward: bringing a larger number of parts closer to customers increases local product availability and can translate into higher sales.
“When you jam more parts in the local market closer to the customer, then to Phil’s point, it drives sales,” Jackson said.
AutoZone opened 16 mega hubs during the quarter and 39 over the full year, Jackson said. The retailer now operates 172 mega hub stores and expects to open more than 40 additional mega hubs in fiscal year 2027.
Jackson also highlighted the impact of the network on AutoZone’s commercial business.
“There are approximately 2,000 commercial programs that are linked to a mega hub network. These programs sell 16% more annually than the balance of the commercial programs in the chain,” he said.
Expansion continues in Mexico and Brazil
AutoZone’s supply chain expansion is also progressing internationally, although the company is placing greater emphasis on Mexico as it slows its expansion pace in Brazil.
Daniele said the company has completed its new distribution center in Brazil, which is already helping to reduce supply chain costs.
In Mexico, meanwhile, AutoZone has expanded its distribution capacity in Monterrey, with the company’s new distribution center now twice the size of the previous facility.
“We opened our new expanded Monterrey, Mexico, distribution center and broke ground on another planned DC in Mexico,” Daniele said.
The expanded Mexican supply chain is intended to improve customer service, lower distribution costs and provide additional support for AutoZone’s international store growth.
“This expanded Mexico supply chain will allow us to serve our customers better, reduce supply chain costs and better support our international store growth,” Daniele said.
Advance Auto Parts also reshapes its distribution network
AutoZone is not alone among major auto parts retailers in restructuring its distribution infrastructure.
Rival Advance Auto Parts is also progressing with its distribution consolidation strategy. Earlier this year, the company said it was nearing completion of its distribution overhaul.
More recently, in August, Advance Auto Parts said it was accelerating the pace of market hub openings, with plans to open up to 20 locations this year.
President and CEO Shane O’Kelly said during the company’s August earnings call that Advance Auto Parts aims to operate 60 market hub locations by mid-2027.
