Dive Brief:

• AutoZone's profits rose 6.4% and domestic sales rose 1% last quarter, suggesting the parts retailer's mega-hub strategy is paying off, the Wall Street Journal reports.
• The retailer recently began increasing inventory in certain "mega-hub" stores to ensure surrounding stores can quickly access unavailable parts.
• Compared to last year, inventory per store has increased 2.5% and total inventory has gone up 6.1% due in part to 71 new store openings.

Dive Insight:

Consumer expectations are shifting and while the news may be surprising given a general decrease of in-store inventory by the retail industry, parts and used goods retailers are effectively scrapping the middle step in logistics by selecting stores to double as distribution centers.

In this light, AutoZone is an example of a general industry trend: as consumers expect tighter fulfillment timelines, supply chains are being front loaded into smaller, regional distribution centers which are serviced by massive warehouses.

But when a customer walks into AutoZone, they expect to pick up the part they need in store immediately or within hours. (Imagine walking into Lowe's for a screw to find they are out of stock). In order to maximize spot sales, then, the company opted for carrying up to 10% more inventory in select stores, RIS News reports, which surely required significant analytics work.

AutoZone's success is a good sign for the logistics industry's own small/large warehouse combination strategy.