AutoZone is one of the nation’s largest retailers of automotive replace parts and accessories in the US.
Founded in 1979, AutoZone has grown to 5,618 domestic stores and 584 stores abroad. AutoZone provides on-the-job training, formal training programs, and an internal ‘Z-net’ all of which enable employees to provide recommendations, solutions, and advice to customers. AutoZone breaks up their types of products into three categories, Failure, Maintenance, and Discretionary.
Net Lease Overview
AutoZone is an attractive net lease tenant because of the online-resistant nature of their business and investor-friendly leases. AutoZone is somewhat insulated from online competition due to the degree of technical proficiency needed when they are looking for auto parts. Services such as help picking the correct length windshield wipers for a customer’s make, model, and year of their vehicle will ensure that brick and mortar auto part stores have a future in an increasing online retail marketplace.
AutoZone features a mixture of double net and ground leases, which can drastically change the cap rate for a property. These different leases leave the investor with varying levels of landlord responsibility. Both types of leases feature an investment-grade guarantee.
AutoZone locations have both attractive and unattractive qualities to investors. The research was done by AutoZone to choose markets with a large number of older vehicles, that will require more maintenance, is positive for potential AutoZone owners, and will ensure store profitability. Choosing locations with high visibility and traffic counts provide strong real estate fundamentals, a positive for net lease investors. AutoZone views their stores as ‘destination stores,’ generating their own traffic rather than relying on traffic from adjacent stores. This is a potential negative factor investor should consider before investing in an AutoZone leased property.
AutoZone has traded at slightly lower cap rates than the other major auto parts retailers. This premium has been driven by the large percentage of ground leases. All three of the major auto parts companies are investment grade.
AutoZone has historically traded slightly below the Single Tenant Net Lease (STNL) average.