AutoZone Case Study Group 1

The Bottom Line

Penetrate the Mexican auto parts market

  • Increase new store development in Mexico by 75 stores
  • Build a distribution and support center in Mexico City
  • Fund the expansion through bonds to cut costs

It will cost $390 Million, make $440 Million in the next five years, and net $50 Million profit

The Strategy

  • Add 75 stores per year to increase revenue from AutoZone's Mexican segment for a total average of 116 stores per year
  • Build a distribution center and support center in Mexico City to increase efficiency

Rational

  • Higher industry growth rates in Mexico
  • Decrease in demand for aftermarket auto parts in the US
  • Increase in demand for aftermarket auto parts in Mexico
  • Low competition in Mexico
  • Currently cheap investment costs in Mexico

Implementation

  • Pursue current strategy of leasing and purchasing and building store property
  • Add stores at an increased rate for the next four years and evaluate progress after that time
  • Hire and train new employees

Distribute new stores among the top ten most populous cities in Mexico

Financials

NPv, IRR, and EPS

  • Hurdle Rate: 14.4%
  • NPV: $12 Million
  • IRR: 22%
  • EPS - Y1: $44.60 - Y2: $52.77 - Y3: $66.14 - Y4: $69.58

How?

Bonds
  • Float $100 million in bonds at 3.75% each year for the next 4 years
  • This covers land purchases, construction, startup costs, etc.
  • Estimated $700 thousand in revenue per store
  • Continue stock repurchase program per board supervision

Human Resources

  • Our proposed HR strategy will incorporate a full cycle recruiting process for 4520 employees to staff our 75 new locations annually along with our distribution and service centers.
  • The total costs associated with recruiting, total compensation, and training for four years will be $85,656,000
  • To reduce Autozone's risk of future discrimination lawsuits in the US, the proposed strategy is to offer a severance package to fired employees on a case by case basis, contingent upon their acceptance of a non disclosure agreement the sunk cost for this expenditure will be $500,000 in the year 2017

Credits:

Created with images by petercastleton - "you're nuts" • RussBowling - "Puebla, Mexico"

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