Now there’s a possible threat on the horizon from online retail giants like Amazon.com( AMZN) and eBay( EBAY), the latter

of which has 2.7 million listings under auto parts.

In 2013, traditional retail channels — mainly auto parts stores and new car dealerships — accounted for 94% of auto replacement part sales,

or $98 billion of the $104 billion tally.

The top four retail chains held about $36.4 billion of those sales.

Parts sales through new car dealerships continued to dominate, with more than $60 billion in sales in 2015, according to the Auto Care Association (ACA).

But the fastest-rising piece of the business came from Amazon and other online providers , including sites of auto parts retailers

such as AutoZone, which together delivered==>$6 billion in auto parts sales.

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The ACA forecasts that online aftermarket auto parts sales will grow to $28.8 billion, or +20.00% of the $147 billion total, in 2023 .

The question is: Can AutoZone, O’Reilly Automotive and other auto parts chains continue to thrive as the Amazons of the world expand further

into auto parts and services?

Auto parts retailers say they are confident. They do things that Amazon and other large online retailers can’t, giving them what they see as a

tactical advantage, according to O’Reilly Automotive investor relations director Mark Merz.

“There are two dynamics that, in our industry, really do require the brick-and-mortar locations,” Merz told IBD.

“No. 1 is the immediacy needs of our business. If a car is broken, you have to get it fixed now.”

And though Amazon can deliver a part within hours, an auto parts store is likely no more than 30 minutes away.

More importantly, if the part doesn’t fit it’s just another 30 minutes to return to the store and exchange it for one that does.

The second factor is a high level of service. Auto parts retailers carefully nurture relationships with customers — particularly with high-volume

wholesale customers. They make sure salespeople are knowledgeable and able to answer customers’ questions and do minor servicing, such as

battery testing and replacement.

Graying Auto Fleet

The average age of light vehicles "cars and pickups" on U.S. roads rose from about 11 years old at the end of 2010 to roughly 11.5 years in 2015.

And total miles driven rose to a record 3.12 trillion last year, up from 2.99 trillion in 2014.

Both are very good signs for parts retailers.

Meanwhile, the auto parts retailers have been consolidating. Between 2007 and 2010, there were a total of 163 merger-and-acquisition transactions

in the auto care industry, ACA said. That figure skyrocketed to 483 between 2011 and 2014.

Brian Collie, a partner and managing director at Boston Consulting Group, said many of those deals were done by what he calls the

“Big Four” auto parts retailers:

AutoZone - Advance Auto Parts - O’Reilly Automotive - Genuine Parts /Owned by NAPA Auto Parts.

The foursome accounts for almost 40.00% of industry sales, up from about 25% in 2005.

They now address the bulk of the $47 billion in annual sales (in 2013) for do-it-yourself mechanics.

They have also picked up a piece of the $89 billion (in 2013) annual sales to do-it-for-me mechanics and repair shops, a market still ruled by

auto dealership parts departments.

“(The big chains) have done a nice job driving consolidation and picking up market share along the way,” Collie said.

Asked whether online retailers like Amazon are a threat to traditional brick-and-mortar retailers like AutoZone, Collie replied:

“Certainly you do see online emerging as a more popular channel."

"Online sales are still in single digits in the auto aftermarket channels... B ut it has been growing."

" It’s something brick-and-mortar retailers are paying attention to .”

Others in the auto parts retailer group include Copart( CPRT), which conducts salvaged vehicle auctions for insurers, auto dealerships

and others, and LKQ( LKQ), which sells recycled and refurbished auto parts, mainly to mechanical and auto body repair shops.

LKQ Chief Financial Officer Nick Zarcone said Amazon isn’t a rival, it’s a partner.

“Not every part they sell comes out of their warehouse. We are a partner of Amazon, but we don’t use Amazon for delivery"

"Almost all of our deliveries are on our own vehicles.”

A Dwindling Sweet Spot?

Collie says one challenge goes back to the vehicle age question.

While the overall U.S. auto fleet is aging, the number of cars in the “sweet spot” for auto repair.. 5 to 10 years old

This at the lowest level in years, he said.

Cars that are 1 to 5 years old are under warranty.

For cars over 10 years old, owners often put off all but the most critical repairs.

According to ACA data there were 103.7 million cars in the middle — the sweet spot — in 2011.

The trade group expects that number to fall to 85.6 million this year and continue declining until 2018.

Collie doesn’t see that as a big hurdle though. “We have had six years of great growth. That sweet spot will do just fine,” he said.

AutoZone, with roughly $10.4 billion annual sales, has reported double-digit earnings-per-share growth for 36 quarters in a row.

Analyst consensus projects a 14% year-over-year EPS increase this quarter to $10.93 a share. Sales are forecast to rise 6% to $2.6 billion.

The company reports its fiscal third quarter results on May 24.

AutoZone shares briefly topped a cup-with-handle buy point in March and April, then eased back into a flat base with an 810.10 buy point.

Shares traded 4% below that buy point on Friday, but they were wrestling resistance at their 10-week moving average.

CEO Bill Rhodes told analysts on the company’s March 1 fiscal Q2 earnings call that AutoZone has “been aggressive on our technology investments,”

including its website and apps for Alphabet( GOOGL)-owned Google Android and Apple( AAPL) mobile devices.

“We realize as customers have become much more tech- and mobile-savvy, we have to have a sales proposition that touches all the ways they desire

to interact with us,” Rhodes said.

Advance Auto Parts posted $9.7 billion revenue in 2015 but has struggled of late.

The Roanoke, Va.-based company’s fiscal Q4 earnings slipped 11%, not as bad as expected.

But revenue also fell 9% to $2.03 billion, its first top- and bottom-line decline in more than three years.

On April 4, the company named Thomas Greco CEO.

He succeeded George Sherman, who had served as interim CEO since January.

Advance Auto reports its Q1 results next Thursday, and shares are in need of a boost.

The stock has declined in six of seven weeks since failing to retake support at its 40-week moving average in April.

O’Reilly Automotive ramped up revenue to $8.2 billion last year, gaining market share and posting double-digit revenue growth for five quarters

in a row, during which time rival AutoZone’s sales grew in the single digits.

Advance Auto’s sales grew in single digits for three straight quarters prior to last quarter’s decline.

O’Reilly’s stock boasts a 94 IBD Composite Rating, meaning it’s outperformed 94% of all stocks on key metrics such as sales and profit growth in

recent quarters. Shares have sagged since failing to successfully clear a six-month cup base in April, and they now face resistance at their 50-day

moving average.

Genuine Parts has $15.3 billion a year in revenue. Its sells office products, electronics and auto parts through 6,000-plus NAPA Auto Parts stores in

the U.S. and subsidiaries overseas. Auto parts sales last quarter were $1.93 billion, putting it on par with O’Reilly and Advance Auto.

Genuine Parts’ quarterly EPS has been flat for four quarters in a row, and it’s reported lower total year-over-year revenue two of the last four periods.

Its shares are six weeks into a flat consolidation that could qualify as a base. But its Relative Strength Rating is a relatively weak 75, and its

Accumulation/Distribution Rating — an indicator of buying interest among institutional investors — is a soft C-.

Horizon Clear For Now

S&P Global Market Intelligence analyst Efraim Levy says prospects are good for auto parts retailers, and he doesn’t see Amazon as a threat for now.

“Automakers are selling more vehicles than ever, and consumers are driving them more too,” as jobs and economic growth spur commuting and vacations,

Levy said in an interview.

“Gas prices remain low, allowing people to drive more and putting more money in wallets that they can spend on products for their vehicles.”

Levy has a hold rating on AutoZone, with a 12-month price target of 820, and he rates O’Reilly Automotive a hold with a 289 target.

He cited valuation for the hold ratings. “I see upside for them, but not enough to outperform the (stock) market,” he said.

Levy doesn’t track other auto parts retailers.

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