O’Reilly Automotive: All in the Family
By Tom Carlson
If you were to prick the finger of a member of the O'Reilly family, he or she would, in the words of David O'Reilly, "bleed green."
According to Irish folklore, St. Patrick once used the shamrock to demonstrate the principles of the Trinity to believers: The shamrock has three leaves. We've somehow come to associate St. Patrick's Day and "the luck of the Irish" with a four-leaf clover, but the icon on the O'Reilly Automotive logo is the real deal: It's a shamrock with three leaves.
The O'Reilly Shamrock stands for a company that made its own luck by emphasizing the three values of honesty, integrity and hard work. With that foundation, O'Reilly Automotive has grown into the third largest auto parts company in the United States with more than 5,300 stores in 47 states and over 80,000 team members.
It is a unique story about a family that spans three generations and 100 years in the business, starting with Grandfather C.F. O'Reilly and followed by his son Chub and then Chub's four children: Charlie, Rosalie, Larry and David.
The story begins in 1914 when C.F. hired on as a salesman for the Kansas City firm Fred Campbell Auto Supply. C.F. "Pop" O'Reilly would continue to go to work every day until his late 80s. In 1926 he moved his family to Springfield to assume management of Link Auto Supply stores. Four years later his 16-year-old son Charles (nicknamed "Chub" to differentiate him from his father) started working with his dad at the auto supply company. Likewise, Chub's children followed Chub's example and started working in the company business when they were old enough.
Rosalie remembers working on inventory on school nights. "My dad would bring home at night these trays with cards for ordering parts, and I would go through the sales tickets to determine how many spark plugs were sold that day and fill out the cards for ordering more."
Besides the family trait of everyone pitching in to make the business succeed, the family has always — when presented the choice between profit and security — taken the path that provided the greatest opportunity.
In 1935, for example, in the middle of the Depression and with 10 children to support, C.F. O'Reilly declined a salary when a competitor bought out Link. Instead, C.F. proposed compensation based on a 5 percent commission for anything he sold, and a half percent on overall company sales.
C.F. and Chub probably would have continued making Link successful if their employer had not hired a management consultant in 1957.
The consultant had recommended that Link change the team that had been winning in Springfield for the past 30 years. He urged the company to turn C.F. out to pasture and move Chub to Kansas City. This was not going to happen. C.F. still had plenty of gas in the tank, and Chub happened to like Springfield and his fellow workers. So in 1957, at an age when most folks' thoughts are turning to retirement, father and son decided to start their own company and brought along 11 fellow employees from Link.
From the start, C.F. and Chub adopted policies that the company still follows. They considered workers members of a team, not mere employees. Team members could own stock in the company. Promotions would be almost entirely from within the company; rarely were there lateral transfers. While these team members were not biological O'Reillys, they were basically adopted into the family.
"The O'Reilly company culture is that you treat everyone like family," says longtime family banker Rob Fulp.
The O'Reilly family, a longtime supporter of Catholic missions in the area, also adopted the Biblical Golden Rule to treat others as they would want to be treated themselves. Chub, who died in 2005, explained their thinking:
"We learned about people by observing how others conducted themselves," he said. "We understood early the importance of investing business trust in them. Our philosophy crystallized quite soon around the belief that it is the people who make a business what it is, and that to be successful we must share the fruits of the venture as well as the burden."
Their business model was so successful that Link closed its Springfield operation one year after the consultant's recommendation to break up the father/son team. Four years later in 1961, the O'Reillys formed Ozark Automotive Distributors and began wholesaling to other auto parts stores.
Growth of the stores was slow at first because C.F. had imposed a rule that an O'Reilly family member had to be physically at their stores. That policy limited the number of stores to two until oldest son Charlie joined the company in 1963 after a stint in seminary and then teaching junior high English in St. Louis. In 1966, Charlie opened a third store in Joplin. In those early days, he would call on the truck stops in the area and tell them that if they needed a part in the middle of the night to call him, and he would get out of bed and deliver it to them.
In the 1970s when Pop was nearing 90 years old, the family patriarch decided to slow down and turn over control to his 60-year-old son. But Chub instituted a major change by relinquishing absolute control and delegating responsibility to son Charlie and afterward to Larry, Rosalie and David as they joined the company. Growth picked up. "I used my (children's) youth and vitality to move the family business forward. The experiment worked. Now the company is committed to this decentralized approach," he said of the change.
Like a coach, Chub assigned particular positions to his children on the company team, remembers Larry. "It took a lot of strong communication among the four of us, slotting our strengths in the right areas so we didn't have four horses all trying to run in the same lane."
As Chub aged, his oldest son Charlie became the face of the company to the public. Charlie, who calls himself a people person, concentrated on customer service particularly on the retail side, visiting each store every year, encouraging team members until that became physically impossible and he started sharing that responsibility with then Vice President Ted Wise who is now retired.
"Great companies all have a compelling competitive advantage — something that you are better at than anyone else," Charlie says. "Other companies can also have good-looking stores in good locations, good products, etc., but our advantage is in the customer service category delivered by our hard-working O'Reilly team members."
The next O'Reilly to join the company was Larry who came in 1969 after turning down a job with Monsanto. He was a born salesman, Chub said. He called on garages in the southwest Missouri area. In the process he learned which businesses might be up for sale. Larry, whose primary focus was sales and marketing, was instrumental in negotiating the early acquisitions that set the template for the later mega-mergers.
Larry strongly advocated the Hi/LO and CSK acquisitions that occurred after the company went public in 1993. The scale of these acquisitions catapulted O'Reilly from a regional to a nationwide company. "There were several advantages to the company," he said. "First, you eliminate a competitor, and second you acquire great people who already have customer accounts. It saved a tremendous amount of groundwork. Hi/LO, for example, was in Texas and we were in Oklahoma, so it allowed us to expand our footprint without too much overlap."
Following Larry, David O'Reilly came in 1972 after a stint with Southwestern Bell. David, who graduated from Drury University with a degree in business and economics, focused early on in converting the old card and ticket inventory system to a computerized point-of-sale process at a time when their competitors were still tied to a paper-based system. His duties extended as well into finance, purchasing and distribution.
Rosalie, also a Drury graduate, after working as a schoolteacher for 13 years, joined the triumvirate in 1980 and was special projects coordinator and vice president of risk management, telecommunications and human resources over the next 20 years of growth.
The company's original focus was as a wholesale parts supplier. Sales to the retail public were discouraged because of the concern that they might be competing with the garages, said David, who is the current chairman of the board. But in the 1970s when Walmart and Kmart started selling auto parts, O'Reilly followed suit and then revamped its stores.
In the old days, if a customer wanted a part, he would come to the parts counter and a clerk would look it up in the parts catalog and retrieve it from the shelves in the back. To stay competitive, David said, the company modernized its stores with new lighting and shelving in front of the counter so customers could shop for many items themselves. This also enabled the company to market many products under its own name. Today 40 percent of retail sales are for in-house brands.
Other changes were in the works. In 1993, with 122 stores and $110 million in sales, the decision to take the company public on the Nasdaq exchange was a defining moment for O'Reilly Auto.
It was a great move for the company. The initial stock offering generated $100 million, and because the money wasn't borrowed, "we didn't have to pay it back," remembers Larry. The public offering now created a market for the stock owned by the family and its team members, and it gave them the working capital to fund accelerated growth.
"When you make the decision to go public and grow much faster, the only thing that remains constant was change," Larry said. "Each of us was challenged to take on more. Our people needed all the support we could give them as we all had increased responsibilities. It seemed overnight we had become a big company."
Some things didn't change, though. Like his father before him, Chub O'Reilly still had his office at the corporate headquarters into his 90th year. He continued to support an equal power sharing arrangement among his children. Charlie replaced Chub as chairman of the board, David and Larry became co-presidents and Rosalie was executive vice president. Along with a strong management team, the stage was set to take the company to new heights.
Still, the message from management has not changed from the first early days.
"The family had already recognized that if the company was going to grow, they needed to have dedicated, loyal team members," says retired, former co-president Ted Wise, who started with O'Reilly as a delivery driver. Whether acquiring an existing store or hiring staff for a new store, orienting new team members in the O'Reilly culture is job one, Wise says. Newly hired team members, many of whom call themselves "gearheads," learn that many of the company executives started as a driver, then a parts specialist, then a store manager, and eventually a district manager. This method of training and promoting from within has created a loyal workforce. Today this company traditions continues with current Co-President and CEO Greg Johnson. Greg started with the company as part of the Mid-State Automotive acquisition in 2001, and has held various roles throughout his tenure. In addition, current Co-President and COO Jeff Shaw started with the company as a parts specialist in 1988.
Today, O'Reilly arguably is the best in class when it comes to combining its retail and wholesale business. Its dual marketing strategy has been difficult for competitors to duplicate. The company operates 27 distribution centers in addition to its 5,300 retail locations. Morningstar, which follows O'Reilly, gave it an exemplary stewardship rating in its March 2019 analysis, noting that management has transformed the company from a regional entity into a top-four national chain.
Lots of things have, of course, changed since those early days. The company performs extensive demographic research, checks traffic patterns and analyzes competitors in deciding where to
open 200-210 net, new stores each year. But it takes more than just research and 21st century technology to carry the ball across the goal line.
Customer service is still at the top, says Rosalie O'Reilly Wooten.
"We train for it and talk about it all the time, about being fair and courteous. This is what has made us successful. Every manager and regional manager comes to Springfield, where we have a training department. It's hard to quantify, but we just want every customer to be greeted and to get good service from a person who has had good training."
In other words, you still have to bleed green.