AutoZone Wants To Open 200 "Mega Hub" Stores -- But Where Will It Find The Real Estate?

~1/2 of AutoZone's new store openings over the next 6 months will be its large "Mega Hub" stores most of which are backfills, repurposes and adaptive reuses of vacant Big Box retail buildings

AutoZone AZO 0.00%↑ operates ~6,000 stores throughout the U.S.

The majority of these stores are freestanding buildings between 6,500 and 8,000 square feet that carry on average 21,000 unique product SKUs.

But 111 of AutoZone’s U.S. stores are "Mega Hubs," or stores that carry over 100,000 SKUs and are as large as 30,000 square feet.

Even though Mega Hubs make up less than 2% of AutoZone’s U.S. store base, they represent an outsize share of the Company’s new store development.

AutoZone plans to open 19 Mega Hubs over the next 6 months which are expected to comprise roughly 1/2 of its new U.S. store openings during that period.

AutoZone has sourced "2nd generation" real estate vacated by Big Box retailers for the majority of its current Mega Hubs and those that are in development.

In fact ~10% of current AutoZone Mega Hubs are repurposes of former Toys R Us and Kmart properties.

Because AutoZone Mega Hubs carry an expanded product assortment, these stores generate both high sales volumes and serve as mini-distribution centers that facilitate quick replenishment of inventory at smaller AutoZone stores in the area and fast delivery of parts to commercial customers.

AutoZone anticipates operating as many as 300 Mega Hubs at full buildout — nearly triple the size of its fleet.

The majority of Toys R Us and Kmart properties, however, have already been re-tenanted or redeveloped.

And AutoZone management has acknowledged difficulty in sourcing other ~30,000 square foot Big Box buildings for its Mega Hub new store pipeline.

So where else might AutoZone find real estate to open new Mega Hubs?

Well the recent bankruptcies of Conn’s, Big Lots and Joann have freed up over 2,000 Big Box sites — nearly all of which fit the size range of an AutoZone Mega Hub.

But AutoZone is likely to face competition to secure these Big Box sites — including from its rival auto parts retailers.

Both Advance Auto and O’Reilly are also aggressively opening larger hub stores, some of which are nearly twice the size of an average AutoZone Mega Hub.

So it is possible that the next batch of AutoZone Mega Hubs may be even larger — and, perhaps, target different real estate.

Like, perhaps, follow the example of Autofit, a wholesale auto parts supplier that recently opened a warehouse and distribution center in a 140,000 square foot former Sam’s Club building in San Antonio, Texas.

The AutoFit property in San Antonio is one of at least a half dozen conversions of former Sam’s Club buildings to an automotive use.

The hybrid background of a Sam’s Club building — part retail and part warehouse — may be an intriguing option for an even larger version of an AutoZone Mega Hub.

Most former Sam’s Clubs are freestanding buildings with high ceilings, open floor plans, and grade level doors which can work well for auto parts storage.

Plus they are located in major retail corridors and close to AutoZone customers, often on large land parcels with plenty of parking, good access and excellent signage.

Many Sam’s Clubs had even offered tire sales and auto service — and thus were already a “known” destination for automotive uses.

So AutoZone may want to think bigger when it comes to sourcing the real estate for future Mega Hub stores.

Of course 100,000+ square foot AutoZone stores may require another type classification.

Perhaps they can be “Super” Mega Hubs.