Managing an online automotive business in the time of pandemic has been a bit challenging, with this industry being the most under-penetrated these days. Nevertheless, auto companies are still managing to survive and deliver. Exploring his experiences as a COO in this field with Cameron Herold is David Meniane of CarParts.com, the fastest-growing retailer of aftermarket auto parts on the internet today. He shares his role in their operations, going deep into his work in both private and public areas of their company, the lifetime value of the CPA in the automotive industry, and how they consolidate properties to maximize ROI. David also discusses his leadership strategy, underlining the importance of building people’s mindset first rather than focusing on money-making alone.
Since March 2019, David Meniane has served as CarParts.com COO and CFO, overseeing operations both domestically and internationally. David has been a key figure in the company’s turnaround as a tech-forward business, especially in the expansion of its fulfillment operations to connect drivers with the parts they need and get them back on the road quickly. As part of this, David served as Executive Vice President of LA Libations, the official incubation partner to venturing and emerging brands group at The Coca-Cola Company. Previously, David served as CFO at Aflalo & Harkham Investments, a $350 million commercial real estate investment partnership.
David currently serves on the board of directors of Space Shake, an emerging CPG company offering low sugar beverages and snacks and relentless trade solutions or retail execution companies supporting a high growth CPG companies in the grocery and mass merchandising channels. David holds a BS in Accounting and a Master’s of Business Taxation from the University of Southern California. He maintains an average CPA license in the state of California. David lives in Los Angeles with his wife and beautiful daughter, Bella. David, welcome to the Second in Command Podcast.
Thanks for having me, Cameron.
We were talking prior to going live and you mentioned that you had heard the podcast when you were accepting this role. How did you stumble on it?
I’m a big podcast fan. I love long-form content. These days, people like short-form like quick videos for 3 or 5 minutes. I like to dive in and I’d like to learn more about backgrounds and what other people are doing. I started doing some research on your podcast and have been listening to it since I took the job. I’m an avid listener.
That’s cool. I’m looking forward to sending this to my dad and my brother. My dad started in a car parts business that he started years ago and my brother bought the company from my dad twenty or so years ago. They sell car parts, automotive and industrial equipment now to the mines up in Northern Ontario. It would be interesting to share something with them because for years my brothers always said, “You can’t sell automotive parts online.” I’m like, “Let’s see about that.”
I would disagree with that but it’s definitely a different way of doing things. If you think about the other industries, auto parts are one of the most under-penetrated industries out there. If you look at apparel or furniture, 17% to 30% of the purchases are made online. For auto parts, it’s only 3%.
They’ve got some cool stuff that they’ve developed over the years that he could sell efficiently even as an add on to his business. When we were talking offline, you mentioned that you read the HBR article, the Harvard Business Review article, The Misunderstood Role of the COO, what did you glean from that article?
What I got from it is, the COO role is what you make it to be. You get to decide what type of COO you want to be and how you’re going to take on the role and what you’re going to be focusing on. I don’t remember exactly how many types of COOs they found.
The Partner is the one that resonated with me and that’s how I took on the role but sometimes, I wear different hats and I will take on a different function but it’s been quite a ride. I’ll say that.
I won’t be able to do all seven off the top of my head but they were something like The Change Agent, The Partner, The Heir Apparent, The MVP and there are a few others.
The last one I forget.
It was an interesting article and you’re right that the COO role is different because you are taking on all of the areas of the business that the CEO either doesn’t want to run or that they suck out. You run the finance side as well, so what parts of the operations at CarParts.com do you run?
I run a lot of different things. Number one is corporate culture, fulfillment operations so anything that has to do with our warehouses, pricing, data science and our contact center. On the finance side, I run FPA, accounting, finance, investor relations and some HR stuff so a little bit of everything.
You’re a mixed bag because we’ve got a bunch of members of our COO Alliance that are from all over the world, the members but I’d say about a third of them run finance and 70% don’t. You’re more of a pure finance guy but what is interesting is you also have the corporate culture component, which is different, most people that would run finance probably wouldn’t run culture. How is it that you’re a culture guy inside the numbers of the business too?
I’m an operational CFO and I’m a financial operator, so it’s a little bit of both. It’s interesting. I’ve read that study too about a third of people have a dual role. I’m surprised that it’s not more. Roles complement each other. I do a lot of stuff on the investor relations side. I do a lot of stuff with the board, our banks and having someone who’s entrenched into the business in the distribution centers, pricing in inventory and purchasing makes a lot of sense.
It starts to make more sense as the company evolves and gets past the 300 employee mark. When you’re going from 30 employees to 100 and from 100, to 300, in the entrepreneurial world, you tend to have the entrepreneurial CEO keeping control of finance. As you scale, you get more business savvy and tenured executives that can run finance and operations. You’re right.
Finance is fun if it’s combined with something else.
What’s interesting is you have the culture component because you don’t normally see the more analytical people in finance don’t tend to run culture. How did you get culture under your area as well?
I took it upon myself to take it on. I’m a big believer in the management philosophy of monkey see monkey do. You go out there, you be the best version of yourself and ultimately if people decide to copy that behavior, you have an impact on the culture. I did it. I’m a guy with a lot of energy and a positive attitude, so I thought that could be an interesting thing to take on. It’s no secret that we went through a whole transformation of the company. The company had been flat for about twelve years and we’ve been around for more than 25 years. As we took on that transformation, we wanted to have a different vibe and that starts with having a different culture.
It’s amazing. I love that you said that you understood that vibe, so you grabbed it. Talk about the fact that you’re in a bit of this turnaround space now and maybe tell us a little bit about what CarParts.com is and how you operate right now.
CarParts.com is the fastest growing online retailer of aftermarket auto parts. What we do is we help drivers get back on the road with replacement parts, car parts and performance accessories. We see ourselves as the Chewie of auto parts. We offer premium quality parts straight from the factory but direct to the consumer. We can have attractive pricing for the same quality component as the national retailers. We’re pretty much exclusively on the line. 95% of our business is direct to consumers, so we do everything from sourcing quality control. We bring the inventory to our distribution centers and we ship them to the customers directly within a couple of days.
The company started more than 25 years ago. We went public in 2007. There was a management team in place for twelve years with no growth even though the business was growing and the industry was growing massively but the company didn’t show any growth. The board decided to make a change and tried to put together a plan for a turnaround. Lev joined the company in January of 2019 as the CEO. Lev and I go back for more than twenty years. We’ve been friends for years and we went to college together. He called me and I joined the company eight weeks later. What we thought was going to be a transformation ended up being an extreme makeover. We barely kept anything.
We kept the soul and the heart of the company and proprietary catalog of auto parts but everything else, we changed. We changed the team, the business model, the strategy and we even changed the name. At the end of 2019, we started showing growth. Our house brands were up 15% year over year and in Q1 of 2020, we showed 40% growth year over year for what happened to be the biggest quarter in the company’s history. In Q2, we beat that record again and we had the biggest quarter in the company’s history again. It’s been fun. We have two offices, four distribution centers and if you include temporary employees and contractors close to 2,000 employees.
It’s amazing. Are you a pure-play online retailer or do you do direct where people come to some of your two locations and purchase direct and walk out?
A little bit. That’s a small part of our business that we have to grow. We’ve been focused on the direct to consumer online piece of the business
For direct to consumer, are you selling to individuals? Are you selling to auto body chains as well for their use in the aftermarket space? Who are you selling to?
A lot of it is Do it Yourselfers, people that have an issue with their car. The car is getting older and they want some replacement parts. Some of our customers do it themselves and other customers buy the parts, take it to a shop and have the shop do the work.
I was a partner in a group called Gerber Auto Collision in the US and it was Boyd Autobody in Canada, we built that company up and took it public. Do you sell directly to auto body chains or no?
We do but it’s a small part of our business. It’s a big opportunity for sure.
It’s got to be because we did a lot of work with the aftermarket space, especially with the older vehicles when you can buy an aftermarket part that fits perfectly but it’s a third of the cost of what buying the OEM is and the customer doesn’t care. They want it taken care of especially when it’s non-insurance pay.
A lot of times, it’s made in the same factory.
Yeah. To your point, the DIM, Do It for Me space is 80% of the market and DIY is 20%. For every customer that does the repair themselves, there are another 4 or 5 customers that go to a body shop. It’s a big opportunity. We’re not built for it yet but for sure something we’re thinking about for the future.
When these parts are being made in the same factory, does one set of trucks drive out with the OEM and turn left and the other set of trucks drive out in turns right with the aftermarket? Is it hidden?
It’s not made on the same day and it’s not the same mold. It’s similar quality control and sometimes it’s a sister company or a building next door but the process of manufacturing the part is the same.
But it’s not exact.
It’s not exact, exact.
Interesting, I had a friend and he sold designer sunglasses. I won’t say the brands but it’s brands that we know and he also made the brands that were being sold in New York City on the street.
70% of the sunglass market is owned by one company, so I’m guessing they own the entire supply chain.
They were making the same glasses but slightly different. The slightly different ones were close enough for nobody to notice but people still want to go to the store and pay four times as much.
Sometimes you’re buying more than a product. You’re buying a brand. You’re buying an experience and the feeling.
Going into an organization and changing it, first off, why did you join CarParts.com? Was it because your friend was there coming in as CEO and you want to work together?
That was one of the reasons. The main reason was that it made me uncomfortable because I’m not a car guy or an eCommerce guy. Everyone I spoke to said I shouldn’t do it. That’s the reason why I joined. I have been in CPG for a long time. I had a small reputation within that small space and I had an entire Rolodex of people that I knew. I had a lot of relationships in the business and I thought, “Who would be crazy enough to go to a job that they’ve never done for an industry in an industry that they’ve never been a part of, a public company and take on two jobs?” Probably 99% of people would say no, so that’s why I took it.
Some people don’t know the term CPG. It is Consumer Packaged Goods. Isn’t the CPG space similar to what you’re doing in some ways in creating a brand?
For us, it’s different for two reasons. One is the catalog because there’s no substitutability. If you think about CPG in the Cola world, if I go to a restaurant and I order a Coke, if they don’t have Coke, they’re going to give me Pepsi and I’ll take it. If you have a Ford F150 and you need a left side mirror, I can’t sell you a Chevy Silverado right side mirror. The inventory and the fitment are key and either you have the part in stock or you don’t. The catalog makes it a lot more complicated. We have 65,000, individual SKUs that we stock so in our distribution centers, we have 65 different parts. That makes it a lot more complicated. The long-tail aspect of the business makes it different.
That’s interesting. You’re right. There is no substitution for the part. The part is the part. That’s it.
It’s not 80/20. The 80/20 Rule doesn’t apply to our business. It’s not 20% of SKUs that account for 80% of our revenue. It’s more like 20% of our SKUs account for 40% of the revenue and the rest, you have to build the data, the fitment, you have to stock it, take the pictures you have to create an experience specific for that part and specific for that year made and model.
I want to talk to you about inventory and your cash conversion and get some ideas on that in a second. You mentioned that if you didn’t have Coke, you’d take Pepsi and I started laughing because you’re French but you’re from France, French. In Quebec, which is the French part of Canada. The nickname for the people in Quebec. Do you know what we call them?
We call them Pepsis because they all drink Pepsi. They don’t drink Coke.
Northeast is heavily indexed on Pepsi. By the way, when I was running the startup accelerator and Coke was funding us, I wasn’t drinking Pepsi. For 2.5 years, I was not allowed to drink any Pepsi products.
My aunt Marian used to run the ad agency in Canada that managed Coca-Cola in Canada. When we were growing up, we weren’t allowed any products in the house that weren’t Coke products. It was the same thing.
The water, the juice and the milk are the same thing, not only the cola.
In inventory, how do you manage? Can you give us a layman’s way to manage inventory so your inventory is turning fast enough and you’re not sitting on too much of it? Because there’s a cost for that as well.
We do a couple of things. Accounting folks look at inventory turns, we came up with our own metric, which is called Inventory Efficiency. Our lead time tends to be 3 to 6 months, so at any point in time, we don’t want to have more than six months’ worth of demand in our distribution centers. There’s a lot of complexity to it and we built a whole inventory forecasting team to do that. We do it at the SKU level but inventory efficiency is basically a metric that says how much of my total inventory I am going to sell within six months. Directionally is that number going up and up. Ideally, you’d want 80% to 90% of your inventory to return within six months if you have our lead times. The only way to do that is to do it at SKUs level at the distribution center level so we built an inventory forecasting model. Remember, we have 65,000 SKUs so we have a forecasting model for each SKU in each distribution center and we make the purchasing at the SKU level.
I stumbled across a number of years ago, it was a guy that I met who built a billion-dollar company in South Africa in the retail space. Let’s call it the Home Depot of South Africa. He gave me a number that he called the 240 Number. The number was the gross margin of the product multiplied by the number of inventory turns per year had to equal to 240 or greater. As an example, if the gross margin on the product was 30%, you had to turn eight times a year. If the gross margin was 60%, it had to turn four times a year. Do you have anything like that you can give people that is rough and dirty that works for the people that are selling? Let’s say somebody’s selling on Amazon or somebody’s selling direct to a consumer, is there a number that they can keep their eye on that might work?
There is but it depends on the product and the SKU. It depends on the amount of inventory that you’re going to buy and the returns are a factor of three things. Number one is your lead time. Number two is how much safety stock you want to have because there is cycle time. We don’t place the buyer every day, we place the buyer every 2 to 4 weeks. Number three is the variability of the demand. If I can predict 100%, what my demand is going to be, if I know that every month, I’m going to sell ten widgets, I know exactly how much to buy.
If my lead time is three months and safety stock is one month, I’m going to buy four months’ worth of demand and I’m going to replenish as I sell it. If the demand is variable and goes up and down with seasonality or I don’t have accurate data then I have to buy more because I don’t want to run out of stock but I also don’t want to overbuy because I have carrying costs. It’s a lot more complicated for our business because the lead time varies across countries. When we source from Taiwan, it’s shorter than when we source from China and the variability of the demand is high.
There are variability and seasonality. The other one is I’ve got a couple of clients that I coach who is dealing with the expiration of some other inventory because some of them are doing food products.
I’m lucky enough that auto parts don’t expire.
That throws another whole wrench into things, doesn’t it? All of a sudden your product expires after six months, you can’t hold six months of inventory anymore because, by the time the consumer gets it, it’s got three weeks left.
You have more macro data. For us, it’s internally macro. It’s how much space you have. We have physical constraints. We have for distribution centers and there are only so many square feet of racks and shelves where we can store inventory. I can be in stock 100% never run out of stock, all I have to do is buy three times the amount of inventory but I can’t store it because it would cost too much cash. That’s inventory forecasting. You hit it on the head because, in 2019, we spent so much time focusing on inventory optimization. It was one of the main drivers and one of the main points was to execute the turnaround because we didn’t have cash.
When I joined the company, we had $2 million in cash and $20 million of debt and we were burning a million dollars a month. What we did have was inefficient inventory, so we were able to do forecasting at the SKU level by the distribution center, turning the inventory that needed to be turned and reinvesting that into efficient inventory, inventory that would sell faster. To go back to your original question, the metric is inventory efficiency and we do tracking by partnering. It’s not complicated. You take the big part names, your top 10 or top 20. How many come in? How many go out? How many do you order? How many do you have in the system? We’re constantly keeping track of demand and as it increases, are we increasing our buys? The other one is inventory classification by SKU ranking.
We talked about the 80/20 rule. For us, it doesn’t apply but we look at A Movers, B Movers and C Movers. What subset of SKU accounts for 20% of your volume? What’s the next subset of skew that accounts for the next 20% and the next 20%? How much in-stock rates versus the dollar commitment and space commitment does it require to be 100% in stock? We do that and we look at the top 2,000 SKUs, next 2,000 and next 5,000. For us, it’s anything that’s critical skews so the fastest movers, we want to be 99% in stock, which is hard to do.
Extremely hard to do. You’ve also got the whole cost per acquisition of a client. Do you have a lifetime value of a client? The value can’t be on that one order. People must be reordering from you.
Two-part answer. Do we have a lifetime value of a customer? Yes. Do we use it to make decisions? No and I’ll tell you why. A lot of companies use the lifetime value of a customer to justify acquiring a customer that’s not profitable on the first transaction. We don’t want to do that. We want to be profitable on the first transaction. What we look at is his gross margin after freight after customer acquisition cost and after fulfillment, not as a percentage as the dollar amount. To the extent we keep being profitable in dollars, we’re going to keep acquiring the next customer now. Do we have recurring customers? Yes, about a third of our customers are recurring customers.
That’s the upside. That’s a bonus.
That’s the gravy.
What a great way to look at it. It’s a nice conservative model too. It makes sense. Who’s doing your marketing? Are you doing it in-house? Do you outsource parts of it?
We have a lot of discussions in-house about outsourcing. Originally when I joined the business we said, “We should outsource this and we should outsource that,” but only the non-core functions. We see ourselves as a technology, marketing and supply chain company so we would never outsource any of that. Marketing is a core competency of ours. In 2019, we didn’t have a marketing team. We built it but we don’t outsource any of the marketing.
Interesting. Without giving away any of the secret sauce? Can you tell us what’s working and what’s not working in marketing?
Yes. Two things. Number one is to optimize each channel on its own. You could be profitable entirely across channels but what you could be doing is making money in one channel and reinvesting that money in unprofitable channels. Not only do we want to be profitable on each transaction but we also want each channel to be profitable on its own. That’s number one. Number two is don’t manage marketing as a percentage of revenue.
We don’t manage the percentages, we manage in dollars. If we’re profitable after the cost of customer acquisition and after the cost of fulfillment, we’ll keep doing it regardless of the percentage of revenue or what people call Cost of Sales. It doesn’t matter if the cost of sales is 40%. If our gross margin after freight is higher than that we can make money and we’ll do it. That’s the financial way of running marketing. Both Lev and myself have a financial background. Everyone runs their P&L in percentages but we don’t. We’re trying to maximize for dollars, not a percentage.
I agree with that. I’ve always been frustrated when people, especially on the EBIT number, try to look at the percentage number because it gives you a false sense of security. Percentages don’t pay the bills.
EBIT doesn’t pay the bill either because not to cover your fixed assets, your CapEx and your interest expense.
The other thing I was thinking about related to marketing is when you said the different channels. Are you selling your products on Amazon, Target and Walmart? Are you direct to consumer on your website?
The fastest one channel and the biggest channel for us is our own website, CarParts.com but we also have a marketplaces business where we sell on eBay, Amazon as well. The number one seller of auto parts on eBay and we’re number ten store in the world. Tenth largest big store.
Are Walmart and Target an option for you? Are you staying away from them?
For Target, we haven’t worked with them. We have a relationship with Walmart but it’s been a small part of our business.
It seems to be coming on big now with Walmart.com. I don’t know what the push is for that. Is it because it’s all pricing?
No. It’s a matter of focus. We have eBay, Amazon and marketplaces teams in general. We’ve been focusing on what we do best. In 2019, we went through a whole extreme makeover so we got rid of all the distractions. The core business is CarParts.com secondary is eBay and Amazon. For Walmart, we haven’t made the investment yet but it’s definitely on the roadmap.
What was the brand before it became CarParts.com?
The company was called US Auto Parts. We operated in seventeen different websites that were down from 300 websites a couple of years ago and when we joined, we decided to consolidate all the websites, all the properties and get everyone working on building one brand, one website so now we only have one website and that’s CarParts.com.
Are you selling globally or only in the US?
Only in the US. It’s a big enough market for us. It’s a $500 billion total addressable market so we have our hands full.
Are you going to stay in the US?
For now, yes at least over the next few years.
I spoke with the guy years ago, they were doing $2 billion in revenue selling doors. The company was called Premdoor and they were the biggest door manufacturer in the US. I said, “Why don’t you sell windows?” It’s similar to manufacturing, distribution, channels and customers because we think about it all the time. He goes, “We’re doing $2 billion a year on only doors in seven countries.” He goes, “We’ll add seven more countries and stick to doors.” I’m like, “I love your focus.” For you guys, if you don’t need more countries, you need a deeper penetration into the US marketplace in car parts.
Especially if you know the history of the company. Our company historically did so many things. We had a lot of different subsidiaries, a lot of different product lines, a lot of different teams, a lot of different websites and it didn’t work. What we’re trying to do is to do one thing and do it exceptionally well. We do sourcing and quality control for private label parts. We bring them, we ship them to the customer and we sell them on our own website. We can build a multibillion-dollar business with only that. We don’t need the distractions.
Have you read a book called Insanely Simple?
I have not. I’ve read a lot of business books but not that one.
Check it out. It’s an interesting look at the simplicity and the focus of simplicity inside of Apple. It’s different. It reads more like a management book than another novel or a story about Steve Jobs and it’s all on their principles of simplicity in ten different ways.
We have an internal lingo at CarParts.com. We call it Team Denied. It’s a joke that we have internally. Anything new and anything that’s outside of the core business is automatically a no. Anything you want is no. The answer is no.
My old mentor at College Pro Painters said the true leadership is saying no more often than we say yes.
You don’t build an exceptional business by saying yes. You do it by saying no.
I agree. It’s super smart. Your background coming into this, what was it?
I was born in France and moved to the United States when I was eighteen. I went to community college, learned English, went to USC Business School, met Lev and I ended up staying an extra year. I did a master’s degree that I practiced as a CPA for two years. I went into private. I worked for a real estate investment fund. At the time, we had $350 million in assets. We were going to take the company public. A few months later, the recession hit.
I learned how to play defense for three years. I eventually left and started my own company in the consumer packaged goods industry. I did it for six years and the company got acquired. I was recruited by a company called LA Libations, which is a startup accelerator that was funded by the Coca-Cola company. I stayed there for 2.5 years. In those 2.5 years, we made fourteen different investments. We started three different companies, including a trade execution company that has 50 employees. Eventually, I got a call from Lev and he said, “Check this out this company. I’m going to be the CEO and I need someone like you to come in and help me transform the company.” At the time, we didn’t know how messed up it was. We didn’t realize it was about 3 to 4 months away from shutting down. What we ended up doing is a full-on extreme makeover.
Your parents rip you out of Paris, when you were eighteen years old and take you to the US. How long would you stay pissed off at them for taking you out of France?
One year because it’s a different culture and I didn’t speak the language. I went to UCLA and said, “I want to sign up.” They’re like, “You don’t speak English. You don’t have SAT scores. You’ve got to apply a year in advance.” The first year was tough but then I found my calling. This country, this culture and everything here is incredible.
It’s such a different culture shift for sure to come from one of the others like that.
It’s a culture that suits me better. What I like about my qualities are all the things that are American.
You seem LA for sure. You fit. You get into CarParts.com, you see everything and it’s messed up more so than you thought, so how did you prioritize what to fix what to start with?
Number one was building a team. We didn’t know what part of the business. We knew the business was broken and we knew the business was losing money. We didn’t exactly know why so we had to dig into every area of the business. We had to meet every person that worked for us, so I made it a point to visit our team in Manila, to visit every distribution center and to meet every single person that worked for us eye to eye. I met 1,200 people at the time.
I wanted to go there, introduce myself and listen to what they were saying. Sometimes you find some good ideas with people that have been in the business for 23 years. We have some good ideas. We found areas that were broken and we found areas that we thought were working but they ended up not working so we focused on building a team. What we ended up doing over the course of a year is rebuilding the management team. There are twenty of us on the management team and eighteen of us are new. Some of them were at the company before some of them came from auto parts and some of them didn’t so it’s a full combination of operators.
What we did also is ignored the fact that we were a public company. If you start running the business quarter to quarter, if you start trying to please investors, if you try telling the story of what you’re going to do, the company has been in distress for a long time. It hadn’t grown for twelve years. Our stock was $0.97 at the time so it’s a $30 million market cap. No one thought we could make it so it gave us the ability to focus on the business and execute. I didn’t do any investor conferences and I didn’t talk to investors.
We focused on executing the business and building a team. Number one was building a team and number two was building a culture and trying to rebuild the culture around excellence, discipline, a positive attitude and a great mindset. Number three, you mentioned keeping it simple. We’re refocusing the business on what made us unique. What are our core capabilities and how do we do that? We do sourcing and quality control of aftermarket parts, we bring them, we ship them to the customer. Anything else, we basically decided not to do it.
Interesting. I like that you were saying that you knew you’re a public company but you didn’t focus on being a public company. What part of being a public company did you have to focus on?
Earnings release. Every quarter, we have to announce our earnings. We have to get on the phone with Wall Street analysts and our investors. I did the bare minimum. Lev and I basically said, “It doesn’t matter what we say.” The company had a history of giving guidance and saying they were going to do this and that. We said, “This is who we are. This is our strategy. What we’re going to do is focus on our core business and we’re going to take the next 1 to 3 years to execute the business. If you want to stay for the ride, you can stay and you’ll hear from us once a quarter and completely ignore the stock price.”
The market cap is $30 million. I knew that company was going to be worth a lot more. I knew the company was worth more but it didn’t matter. It doesn’t matter what you tell investors after 1, 2 or even 3 quarters, it takes consistent discipline delivering results. We have seven consecutive quarters of gross margin expansion, seven consecutive quarters of gross profit growth, seven consecutive quarters of better performance. We’re not done but it gives us a little more credibility in the marketplace.
Interesting. On the people side of the business, what’s your approach to leadership into leading a team?
My approach is you hire the best people, you empower them and you give them the flexibility to do their work. Steve Jobs used to say, “You don’t hire smart people to tell them what to do.” What I do is I hire technical experts. I’m an expert in corporate culture and financial engineering but I’m not an expert in inventory forecasting, pricing, data science, warehouse operations and contact center. What I did is I hired the best of the best for each individual role. I have nine direct reports, nine VPS, eight of whom are new to the business or new in their role.
How about meeting rhythms? What do you do with the meeting rhythms inside the organization?
I know you wrote a book about meetings. We have a lot of meetings because we’re process-driven.
This is great. I like meetings. I want to make sure that people stop complaining about meeting and saying that meetings suck. I want them to get trained in how to run them. The book is there for every employee at every company to read, not to complain about them. What meetings work well for you guys?
When we joined, there weren’t any meetings. The meetings had no structure. Our meetings are structured because they’re on the same day of the week at the same time and have the same agenda every single week. Everyone that comes to the meeting comes prepared. We ask everyone who’s going to present to have a deck, a PowerPoint. It doesn’t have to be fancy or twenty pages even if it’s one page but we follow a process.
Usually, when we start the meeting we make a little joke. We have fun working together. We have about 35 to 45 minutes of going through data points. If it’s inventory, its inventory efficiency, stock rate turns A Movers, B Movers, collision business or replacement business. We look at a specific part name then we talk about the systems and the team action items and we wrap it up. It’s about 45 minutes but we have a lot of meetings.
All of your growth is organic as well. You’re not doing any acquisitions, are you?
No. All the growth is organic, yes.
That’ll stay as the focus?
For now, yes. You never know if there’s an opportunity out there to join forces or acquire a business. I don’t like the M&A investment, bankers, synergies crap. If there is an exceptional business out there that we think we would love to own long term, that’s something we could be interested in. What we’re doing is we’re not managing the business quarter to quarter and some investors don’t like that and our investors love it. What we’re trying to do is build a business that we’ll be proud to own years from now. We want to build an exceptional company.
Out there, there is another exceptional company that could make sense to be part of the same family of the same umbrella, we’ll look at it but it’s not the main focus. The reason it’s not the main focus is there’s a lot of meat left on the bones. The total addressable market is $500 billion in the US. We were at $400 million. We could get to a couple of billion dollars organically. We need the time and we need to continue executing.
You’ve also kept the fact that you’re public. It’s low key on the website and everything too. You’re not making a big splash of being a public company. Is that partially by design as well that you are staying focused?
We’re focusing on the customer and we’re focusing on solving the customers’ problem. Investors are a different side of the business. I’m lucky enough that I get to play in both sandboxes. I put my investor relations hat a couple of hours a week but 98% of my time is spent building the business. Investors will take care of themselves, the public company will take care of itself.
$630 million market cap.
That’s up from 30. Congratulations, you’re doing well.
We’re lucky that the market is finally recognizing the work we’ve done but there’s still a lot of opportunities for us. We’re starting to grow. We’re starting to benefit from the investments that we made in 2019. In 2019, we made a lot of investments in technology, supply chain, data and marketing. We started growing at the end of 2019, that growth accelerated in the first part of Q1 2020 but we have big goals. We want to build a multibillion-dollar business that will be proud to own years from now, so we’re getting started. The other thing about the market cap and the discrepancy comes from the fact that a few years ago, everyone thought and for good reasons, that we were going to be out of business. Our market cap reflected the residual value of our inventory. We didn’t get any value for anything.
What’s interesting is one of the reasons why I took the job is because of all the stuff that wasn’t on the balance sheet. When Lev and I talked about it, we bought the filing and looked at everything that was in the SCC filing and we started talking about what’s not in it. The CarParts.com trademark is not in it. The JC Whitney brand name, it’s a brand that’s been around for over 100 years is not in it. We have a proprietary catalog that we spent 2 million man-hours to build. It’s not in it. How do we take those assets and leverage them to build an exceptional business? The other thing that we had in there is if we had a scale. The business was in distress but we still had a $300 million business. It’s easier to go from $300 million to $1 billion than to go from zero to a billion.
It’s interesting. I like to focus enough that I got distracted and bought some stock. I like the fact that you also told me before we got on that you couldn’t tell me how you’re doing because you can’t disclose earnings. I’m in and I’m now a shareholder. I like how crazy easy it is to buy stock in a company but I love what you guys are doing. I love your focus. I love the fact that you get, the get it factor of you as a COO and a CFO inside of an organization. I’ve been on a leadership team of a public company and lots of private ones but you’re focused on what matters and that’s why you’ll be successful.
There are different ways of doing it and some teams focus on what is sexy. What we focus on are the building blocks of an exceptional business. Operational excellence, financial discipline, outstanding customer experience, corporate culture like getting buy-in from everyone and everything else takes care of itself. It’s like building a high rise but you don’t spend the time to build a foundation. At some point, the high rise is not going to be built. What we want to do is build an exceptional company. Once you start taking that mindset, everything else is a lot easier.
I love businesses that aren’t sexy. I built a house painting business, an auto body shop chain and a junk removal business. You can make stuff sexy.
Good margins, that’s sexy. As a shareholder, you’ll find that sexy.
What’s sexy is the employees coming to work with a company with a vision that takes care of them, cares about them, aligns them and grows them. They don’t care what our widget is.
Our products are cool. We do solve a real problem. What’s interesting about our business is we fulfill a need and not a want. If you have an older car and your insurance deductible is higher now, you have a ten-year-old car and you need replacement parts because your headlights have faded because you live in California, sure. If you go to the dealer, you’re going to spend $300 or $325. You come to our website, you’ll get it for $70 and it’s the same part.
I don’t think most people and I would guess that 90% of people or higher don’t know that a difference between an OEM and an aftermarket even exists. They don’t know. I didn’t know until I got into the auto body space and my dad was pissed off at me because he’d been in the automotive industry forever. He’s like, “How do you not know it?” I’m like, “I don’t know. I didn’t pay attention.”
Go to the dealer and you’ll find out the difference.
When you have to replace that windshield wiper blade, the mirror that gets knocked off the car on the side of the road, the headlight or you as you said, you get into a car accident and you don’t want the auto body shop to go out and spend everything on OEM. It’s crazy.
Window regulator, door handles and all this you can get inexpensive, high-quality parts. You don’t need an OE, especially for a twelve-year-old car.
I would put an OEM part on my Porsche but I wouldn’t put it on my Saab. I can’t get OEM parts for Saab. David, if we’re going to go back to the 21 or 22-year-old you, you’re graduating Community College getting ready to start in your career, what advice would you give yourself back then that you know to be true now?
I would give myself the same advice I give myself every day when I wake up. Don’t quit and keep going. I live by, wake up early and get after it. That’s the mantra that I live by and it served me well. When it’s tough, I do it and when it’s easy, I do. I would tell myself to keep doing what you’re doing. Wake up early, get after it and don’t quit.
I love it. David Meniane, the COO and CFO for CarParts.com, thank you so much for sharing with us on the Second in Command Podcast.
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About David Meniane
Since March 2019, David Meniane has served as CarParts.com’s Chief Operating Officer and Chief Financial Officer, overseeing the company’s operations both domestically and internationally. David has been a key figure in the company’s turnaround as a tech-forward business, especially in the expansion of its fulfillment operations to connect drivers with the parts they need and get them back on the road quickly.
Prior to this, David served as Executive Vice President of L.A. Libations, the official incubation partner to the Venturing & Emerging Brands group at the Coca-Cola Company. During his three-year tenure, he oversaw the launch of three profitable business units as well as three new companies. Using his experience as an operator and financier, the company’s EBITDA grew by 280% and their investment portfolio’s value grew by 73%. Prior to that, David, alongside his wife, Deborah, launched Victoria’s Kitchen, a specialty beverage company, and grew its national distribution until its sale in 2017. Previously, David served as Chief Financial Officer at Aflalo & Harkham Investments, a $350M commercial real estate investment partnership. David currently serves on the board of directors of Space Shake, an emerging CPG company offering low sugar beverages and snacks, and Relentless Trade Solutions, a retail execution company supporting high-growth CPG companies in the grocery and mass merchandising channels.
David holds a BS in Accounting and a Master of Business Taxation from the University of Southern California. He currently maintains an active CPA license in the state of California.
David lives in Los Angeles with his wife and their beautiful daughter, Bella.