NAPA Canada To Supply Canadian Tire With Hard Parts

In a move that is sure to cause some surprise in the Canadian aftermarket, NAPA Canada has signed a five-year supply and technology agreement with Canadian Tire Corporation.
The arrangement will result in NAPA Canada supplying Canadian Tire stores with emergency parts and automotive products not normally kept in stock. Parts represented in this agreement make up approximately 15 percent of Canadian Tire’s total automotive hard part sales.
The supply agreement with NAPA Canada supports a comprehensive strategy in place at Canadian Tire Retail (CTR) to accelerate growth and performance in its key automotive business, says the company, but it comes on the heels of NAPA’s new retail/wholesale strategy that was specifically set out by company president Larry Samuelson as a way to fight Canadian Tire’s success at the retail level.
This agreement will help enable CTR to focus its internal distribution capabilities on its high volume parts and leverage NAPA’s distribution infrastructure for emergency parts and products not normally kept in stock. This will result in significantly reduced infrastructure costs and improved product delivery time to the stores while also expanding the range of products available to customers.
The two organizations have also signed a related technology agreement for parts ordering, automated inventory tools and other associated technology that will expand the range of products and service available to Canadian Tire customers.
This agreement will be implemented in phases. Full implementation, which will begin in the first quarter of 2003, is expected to take place over 12-18 months with the majority of the implementation targeted to be complete by the end of 2003.
Because of this phased approach, the benefits from the agreement are expected to be neutral to Canadian Tire’s earnings in 2003 but will contribute incremental annualized earnings before taxes in the range of $10 million to $12 million beginning in 2004. Implementation, as well as technology and infrastructure changes required to support the agreement, will result in a one-time restructuring charge before taxes of approximately $6 million to $7 million in the fourth quarter of 2002. Notwithstanding the restructuring charge, because of an improvement in Canadian Tire’s effective tax rate for 2002, Canadian Tire confirms its earnings forecast for 2002 in the range of $2.42 to $2.47 per share.
"Automotive is a cornerstone business for CTR which we are growing aggressively by expanding our marketshare. Our continued leadership in this area is also a critical part of Canadian Tire’s overall strategic growth agenda. Our new relationship with NAPA Canada will help support our growth and customer service initiatives by widening the product assortment we offer customers, and by improving our distribution capabilities, efficiency and technology. The NAPA agreement will also significantly reduce infrastructure costs," said Mark Foote, president, Canadian Tire Retail.
"With more than 450 stores across Canada, Canadian Tire plays a major role in today’s automotive industry," said Samuelson. "This agreement supports Canadian Tire’s commitment to service and value for their customers. We are pleased that Canada’s leading automotive retailer has favourably responded to the NAPA competitive advantage, namely, our exceptional service capabilities, wide product range and business solutions. We look forward to a long-term relationship with this fine organization."
"We continue to invest in the growth of our automotive business both in-store and in our distribution and technology capabilities. This agreement will result in Canadian Tire focusing our distribution capabilities on our core automotive assortment, complemented by NAPA Canada’s extended distribution network for emergency product replenishment and lower volume products," said David Roussy, vice-president, Automotive, Canadian Tire Retail. "We are confident this agreement will accelerate our performance in the automotive business to the next level of growth and customer service," Roussy added.
"NAPA Canada is uniquely positioned to partner with Canadian Tire as a key automotive supplier. This agreement leverages our strengths, including 604 Corporate and Associate NAPA Auto Parts Stores, supported by the strongest supply chain in the Canadian automotive aftermarket, with more than 200,000 part numbers available. It also fits very well with all of our internal strategic initiatives while providing significant volume to our network," added Samuelson.