Both O'Reilly Auto Parts and Advance Auto Parts have stores on Main Street in Pulaski. The sign for the Advance store can be seen in the photo below beside McDonalds.

KYLE GREEN The Roanoke Times

Advance Auto Parts President Jim Wade (center) jokes during a store reopening at the Vinton store located at 403 E. Washington Ave. Advance executives have for eight years described their company as "the second-largest retailer of automotive aftermarket parts, accessories, batteries, and maintenance items in the United States."

Advance Auto Parts faces a challenge for the No. 2 spot in the parts-retailing industry from a Missouri chain that is big in the Midwest and expanding to the Mid-Atlantic, including Southwest Virginia.

Both Advance and O'Reilly Auto Parts each recently exceeded 3,400 stores. And more are coming as O'Reilly schedules new stores in Roanoke, Salem and Christiansburg.

The company is reaching so far into the Advance home market, the Roanoke store will be just down Williamson Road from the headquarters of Advance Auto Parts.

The new O'Reilly location will be as close to the Advance headquarters as the nearest Advance store, according to online mapping tools.

Is O'Reilly giving Advance a little nudge, like the scrappy NASCAR driver who finds himself inches behind the rear bumper of the car ahead?

Maybe. Mechanics see O'Reilly and Advance as similar chains offering similar goods and services. With sales and store counts running virtually even, the question becomes whether one will nose ahead in 2010.

Steve Gove, a business professor at Virginia Tech, said the placement of the new O'Reilly store on Williamson Road is probably a coincidence.

"It certainly signals 'we're nearby.' " he said.

A virtual tie for No. 2

O'Reilly is indeed nearby.

O'Reilly has moved from third place into what looks like a virtual tie with Advance for No. 2 in terms of sales and store count.

Advance, a hometown brand that represents the region's only big, publicly traded company on the Fortune 500 list, has firmly held second place for years.

During the third quarter, however, the O'Reilly chain pulled to within three stores of Advance -- 3,415 vs. 3,418.

During the three preceding months, O'Reilly posted sales of only $4.3 million less than Advance -- $1.258 billion vs. $1.262 billion.

On both measures, the difference is a fraction of a percent.

In terms of profit, O'Reilly was well ahead of Advance.

O'Reilly said nothing is meant by its foray into Advance's home turf, calling Southwest Virginia a natural next step north from a new warehouse in Greensboro, N.C. The company wants to get larger, said company spokesman Mark Merz, and "we grow outward from our distribution infrastructure."

"If that puts us No. 2, great," he said.

Advance executives have for eight years described their company as "the second-largest retailer of automotive aftermarket parts, accessories, batteries, and maintenance items in the United States."

The language is repeated in scores of Securities and Exchange Commission filings going back to when Advance became a publicly traded company in 2001.

Earlier this month, company president Jim Wade sounded indifferent when asked about the similarity of O'Reilly's numbers.

"We don't focus on individual competitors," Wade said.

Wade said his focus is taking care of customers and motivating Advance employees. The numbers will take care of themselves, he said.

Think of your favorite drug store chain and the reasons you like it, he said. Does its national rank have anything to do with your preference between Walgreen's, which has the most stores, and CVS, which fills the most prescriptions, he asked?

Darren Jackson, Advance's CEO, said one of the numbers he believes counts is sales per square foot. According to a transcript provided by Seeking Alpha of a November conference call with analysts, Jackson said Advance was posting "unacceptably low" numbers on this metric when he took the helm in 2008 and put Advance into what he has called a turnaround mode to address sluggish sales growth.

Since then, however, Advance has gained ground. Sales per square foot recently stood at $217, up $10 in a year and moving Advance closer to the $239 of industry leader AutoZone.

In addition, Advance recently posted a quarterly profit of 69 cents a share, a 19 percent increase, and a big jump in cash flow.

Investors, however, reacted by driving down Advance's stock price. The shares, which were priced at $47 in late July, recently fetched $40.

Analyst: Advance faces 'glaring problem'

The problem analysts see is too little sales growth. To gauge this, experts look at what's happening at the cash registers at stores open at least a year.

David Schick, an analyst at Stifel Nicolaus, said same-store sales must improve at Advance, or "it brings long-term competitive questions to the forefront," according to the Associated Press.

Gary Balter, an analyst at Credit Suisse, wrote recently that he sees evidence that AutoZone and O'Reilly are taking market share from Advance.

He said Advance's "weak" same-store sales figures in the retail segment -- as opposed to the commercial segment -- are "a glaring problem and suggest that things are not right yet in serving that retail customer."

Recently, Advance brass gathered at 403 E. Washington Ave. in Vinton, site of the 1987 opening of Advance's 100th store.

As employees and guests marveled at a new structure built to take its place, executives basked in the fact that, 23 years since the store's opening, Advance is 34 times as big.

"I think they're on the right track," said Garnett Smith, the former CEO of Advance, in an interview.

As recently as one year ago, Advance had a chance to become an even larger company.

In 2008, soon after Jackson arrived, analysts speculated that Advance might buy CSK Auto Corporation with more than 1,000 stores under such flags as Checker Auto Parts, Schuck's Auto Supply, Kragen Auto Parts and Murray's Discount Auto Parts.

As it turned out, O'Reilly Auto Parts gained the bump in stores with its strategic purchase of CSK.

It went on to finish 2008 with 3,285 stores, 80 percent more than when the year began.

Analyst Tony Cristello, a senior vice president at BB&T Capital Markets, has commended executives for effectively merging CSK into O'Reilly.

Cristello now says O'Reilly is the best positioned of the three industry leaders to make money while the economy is in the slow lane, according to an interview he gave The Wall Street Transcript published on Nov. 12.

Economic climate helps auto parts retailers

The next 12 months give auto parts retailers a key window of opportunity.

Detroit's restructuring knocked scores of name-brand auto dealerships out of business, creating a big opportunity for independent shops to expand volume in service and repair. They get parts delivered by Advance and its competitors.

In addition, more consumers are repairing rather than replacing vehicles, and this has so far continued in the post-recession doldrums also characterized by high unemployment and a sluggish housing market.

That spells steady demand for parts, which is primarily driven by necessity and less likely to decline when consumers conserve cash.

While the economy languished, "the aftermarket parts industry has delivered record growth over the past few quarters," wrote Morningstar analyst Zoe Tan.

She said all three big auto parts retailers are well positioned owing to their purchasing power, diversity of inventory and other economies of scale and could take business away from smaller chains such as Pep Boys.

Tan plugged Advance for early success in selling to garages and professional mechanics, a segment that is a priority for Jackson.

"Through the acquisition of 62 Autopart International stores, the company has a head start and has further penetrated this market by introducing commercial delivery programs in its existing store base. As a result, Advance Auto generated $1.4 billion in commercial sales in the most recent fiscal year, which is almost twice as much as the $770 million delivered by industry leader AutoZone," she said.

Advance acknowledges making a push to serve the commercial customer better.

What will that look like? Anyone who has bought a battery at Advance knows that the guy behind the counter will roll the battery out to your car, up the hood, install the battery and take away the old battery as part of the purchase price.

In the commercial segment, the services are different but the style will be the same.

"Our primary focus is based on increasing the service levels of those garage customers and show[ing] them that we have a part and we can get it to them quickly. We provide them service," Wade told analysts.

"When we do that we find that they are certainly willing to pay a reasonable price for that product."

You got that right, according to mechanics.

When a customer's vehicle is up on the lift for repair, there is nothing more important that access to quality parts delivered fast, they said.

Several mechanics in Pulaski, where both O'Reilly and Advance have stores, were asked which they like best. They said they are not partial to either one.

Both Advance and O'Reilly "do a good job as far as servicing our needs," said Alan Seagle, manager and lead mechanic at Seagle's Auto Repair in Pulaski.

Occasionally, a part turns out to be bad, said Shannon Collins, who manages the Downtown Exxon in Pulaski. In that case, both companies will reimburse the garage to do the job over. But the failure of a part is the exception not the rule.

"You'll get good stuff from both of them," Collins said.