Lang Aftermarket iReport: Two-step distribution leads growth

“Two-step aftermarket product distribution involves Distributors buying from Manufacturers and selling direct to Installers such as Repair Outlets and DIYers.

“Two-step distribution has generated over three-quarters of Independent (non-OE) car and light truck product growth over the past five years (2014 through 2018). Lang Marketing projects two-step distribution will increase its share of light vehicle product growth in the U.S. aftermarket during 2019 through 2024.”

– Jim Lang, publisher, Lang Aftermarket iReport

Independent aftermarket (non-OE) car and light truck two-step distribution is leading the way in aftermarket product growth.

Two-step distribution occurs, in varying degrees, within all Independent (non-OE) light vehicle aftermarket distribution channels.

Traditional Channel

The Traditional channel has primarily been a three-step system in which Warehouses purchase from Manufacturers and sell products to Jobbers, who distribute them to Installers (Repair Outlets and DIYers).

Although much Traditional channel distribution still involves three steps, competition from Retail Auto Parts Stores in the Commercial (wholesale) market is boosting two-step Traditional channel growth, particularly in metropolitan areas.

Integrated Channel

Integrated distribution (characterized by product ownership not changing hands from the time products are purchased from Manufacturers to their sale to end-users) is entirely two-step, as its name implies.

The Integrated channel is recording the fastest growth of all major channels in the car and light truck aftermarket. It has fueled the growth surge of two-step distribution over the past five years and will continue to do so for the foreseeable future.

Specialized Channel

Specialized distributors (those handling a limited array of products or that are involved in a specific segment of the aftermarket) have a majority of their sales represented by two-step distribution.

Two-step distribution is most prevalent among Specialized distributors selling a limited range of products such as Exhaust Specialists, Engine Parts Specialists, etc.

Import Channel

The Import channel consists of Import Warehouses and Import Jobbers that distribute products used by foreign nameplate vehicles.

Most Import channel growth is being generated by large two-step distributors (Worldpac and others), which are taking sales share from smaller three-step Import channel distributors.

Ecommerce and Integration Distribution

Ecommerce is capturing a growing share of aftermarket product volume. Ecommerce can generally be divided into two major groups: Ecommerce recorded by brick and mortar aftermarket participants and Ecommerce conducted by Digital companies.

Ecommerce by Brick and Mortar Businesses

When Jobbers, Retail Auto Parts Stores, and other brick and mortar aftermarket businesses engage in Ecommerce, these Ecommerce sales are an expansion of sales through the distribution channels in which the brick and mortar businesses are engaged.

Digital Ecommerce Sellers

A growing portion of Ecommerce aftermarket business is being generated by Digital companies such as Amazon, RockAuto and others, which do not operate brick and mortar auto parts stores.

These Digital sellers fulfill their orders in two ways. They operate their own Warehouses, which ship products direct to buyers, or they rely on distribution partners to fulfill their online auto parts orders.

Although the latter type of volume has an additional layer of cost from Digital companies obtaining Ecommerce orders, it is two-step distribution in the sense that physical ownership of merchandise is not transferred to the Digital companies in the fulfillment process.

Integrated Channel and Digital Ecommerce

The aftermarket sales of these Digital companies are part of the Integrated distribution channel, and they have supplied the Integrated channel with the majority of its growth over the past five years.

Growth Share

Ecommerce, whether practiced by brick and mortar businesses and Digital companies, is generating the largest portion of the Independent (non-OE) car and light truck aftermarket product growth and will expand its share of light vehicle aftermarket product expansion between 2019 and 2024.

Six Major Takeaways

• Two-step distribution has generated over three-quarters of Independent (non-OE) car and light truck aftermarket product growth over the past five years (2014 through 2018).
• Two-step distribution occurs, in varying degrees, within all light vehicle (non-OE) aftermarket distribution channels.
• Two-step distribution in the Traditional channel is expanding, particularly in metropolitan areas, in response to growing Commercial (Wholesale) market competition from Retail Auto Parts Stores.
• Two-step distribution has accounted for a growing portion of Specialized channel sales. This is especially true of Specialized distributors that focus on a limited array of products.
• Two-step distribution accounts for the largest portion of Import channel growth, led by large direct-selling Import Warehouses that sell to Repair Outlets across the country.
• Ecommerce sales represent the fastest growing portion of aftermarket product growth in the U.S.

Copyright 2019 by Lang Marketing Resources, Inc.

NOTE: Special thanks to publisher Jim Lang for granting us permission to publish the Lang Aftermarket iReport.