Here’s Why More Than 700 Advance Auto Parts Locations Are Shutting Down

It’s been a year marked by undercurrents of unease in the car industry. From layoffs at automakers to beloved aftermarket brands declaring bankruptcy, headlines have left enthusiasts wondering where doom and gloom will come from next, and as it turns out, it might be from where you buy your car parts. Hundreds of Advance Auto Parts locations are shutting down in the next few months, meaning there’s a good chance you could lose a local auto parts store soon.

Actually, it’s bigger than that. In addition to hundreds of Advance Auto Parts locations, the company is also getting out of franchise locations, and downsizing its distribution network. As Reuters reports:

As part of its turnaround efforts, Advance Auto Parts announced plans to close 523 corporate stores, exit 204 independent locations, and shutter four distribution centers by mid-2025. The company aims to improve its adjusted operating income margin by over 500 basis points through fiscal 2027.

Holy crap. If my math checks out, 727 retail locations will be affected by this restructuring, including a whopping 10.6 percent of all corporate-owned Advance Auto Parts stores. Those are some massive cuts that could result in hundreds of job losses, and it makes you wonder what exactly happened.

Well, the truth is that Advance Auto Parts has been struggling for a while. In November 2023, the company reported losses of $0.83 cents per share, and considering it had more than 59 million outstanding shares at the time, we’re talking total losses in excess of $48 million. Clearly, something had to change, and it had to change relatively quickly.

Flash forward roughly a year to now, and Advance has found a lifeline by selling business-to-business subsidiary WorldPac to private equity firm Carlyle Group for $1.5 billion. Depending on how WorldPac is managed going forward, this might be an even bigger deal than closing a huge number of retail locations, because pretty much every shop that works on European cars uses WorldPac to source OE parts using the company’s speedDIAL portal, shown above.

At the same time, things have turned around enough for Advance Auto Parts to be nigh-on breakeven. For the third quarter of 2024, the company reported losses of four cents per share, considerably better than the situation a year before but still not in the zone of profitability. While closing hundreds of locations ought to swing things in the right direction, what headwinds put Advance here in the first place?

Well, Reuters claims that fewer people are repairing cars at home, and while there’s likely some truth to that, it probably isn’t the only explanation. For starters, as commerce in general has shifted from brick-and-mortar to online for many industries, auto parts has followed suit. This means that companies with less overhead in their models, such as RockAuto’s plan of being entirely online, can be competitive on a nationwide scale. Even Amazon is cashing in on auto parts, with its Automotive Part Finder function. If it isn’t in stock at the local auto parts store but you can get it from Amazon the next day, how many people would go through Amazon?

The other side of things is a supply chain crunch. It’s no real secret that auto parts suppliers have been under some serious pressure over the past few years, from inflation affecting cost of materials to reduced automaker demand hurting the OEM side of the business to shipping issues affecting timeliness, these are all hurdles that end up being passed onto retailers, and if you’re a retailer that doesn’t use a lean model, you have less ability to absorb some of those fluctuations.

Of course, heading into a more tumultuous era like the past four years, it probably helps if a company doesn’t spend big. In 2019, CNBC reported that Advance Auto Parts purchased the DieHard battery brand from Sears for $200 million in cash. Oh, and then Advance paid Bruce Willis to start in a “Die Hard”-themed TV ad in 2020. At the same time, Advance continued expansion in 2021, inking agreements to lease 109 Pep Boys retail stores in California, converting them to Advance Auto Parts locations. Keep in mind, this was fully in the depths of a digital-first era, so it might not have been the most prudent capital decision.

It’s worth noting that the physical parts store of old still has a place. If you need a part right now and it’s in stock at a local auto parts store, chances are you’re taking the bus, going on a bike ride, or taking another car down to the store to get what you need. If your daily driver breaks at 3:00 p.m. on a Sunday and you need to clock in at 8:30 a.m. on Monday, you’re looking to get the job done if you can wrench, and the extra cost of going local is worth it compared to the alternative of calling into work.

Still, in a digital-first era, perhaps scaling back isn’t such a bad thing. Maybe it’s time to be more conscientious about the parts in stock, pay better wages for greater knowledge behind the counter, and find ways to be more price-competitive with online retailers. The losses that come with shuttering hundreds of Advance Auto Parts locations will have a serious impact, but for a situation to end up like this, it usually requires people in charge not seeing the forest for the trees.

(Photo credits: Advance Auto Parts, WorldPac)

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