CarParts.com Co-founder Advocates for Board Intervention to Halt Business Decline and Restore Profitability (NASDAQ:PRTS)

LOS ANGELES, CA / ACCESSWIRE / April 15, 2024 / Dear Board of Directors of CarParts.com,

As the co-founder and former CEO of CarParts.com, Inc. (NASDAQ:PRTS), it is my responsibility to shed light on the alarming state of our business in order to take corrective actions before further damage is done. I am writing this letter in good faith and in hopes that the board can grasp the magnitude of our current debacle. Our plummeting share price is just the tip of the iceberg. The real crisis lies beneath: shrinking margins, spiraling costs, and a talent exodus that speaks volumes of the internal decay.

After my tenure as co-founder and CEO, I have had to return to the company in various capacities to rescue the business. Most recently, I rejoined the board in 2018 to help the company restructure and put a new management team in place to assist with the turn around. As a result, I joined the new management team in 2019.

We successfully implemented a turnaround strategy from 2019-2021 that resulted in significant returns for shareholders. The strength of CarParts.com lies in the health of its private label business. This is the foundation the company was built upon.

As you recall, there are several critical areas of the business we previously addressed and corrected from 2019 to 2021. Each of these areas is now in free fall. I left the board and management team in 2021 because I no longer believed in the direction the company was headed. Since leaving, I have continued to share my concerns privately to both the management and to the board, but to no avail. The company's formula for success has gone off course and it appears that management is desperately seeking solutions after stubbornly refusing to adhere to my advice. As a result, our 2019 to 2021 turnaround wins have been squandered.

Talent Exodus

Our LinkedIn feed has turned into a daily exit log of talent, many instrumental in the 2019 turnaround. The management's so-called "incredible culture" seems to be a farce in light of this exodus of talent. Those bold enough to challenge the status quo are systematically expelled, eroding our core strengths. I do not believe that the current leadership is capable of attracting the talent this business has lost. Without these critical experts, every aspect of the organization is at risk, and our quarterly results are showing the effects.

The lack of prior C-Level experience in the automotive e-commerce industry is a contributing factor to the current challenges. Two years in, their failure is not just apparent, but rather absolute and irrefutable.

Shift to Low Margin Drop Ship

The current situation we find ourselves in is all too familiar, evidenced by a transition to a low-margin, branded dropship strategy that is depleting our cash reserves, eroding our market position, and merely implemented to mask the collapse of the private label business as indicated on the Q4 2023 earnings call. This strategy shift, showing a lack of financial oversight and a disconnect from our historical strengths, indicates the current leadership's fundamental misunderstanding of our business model. Gross margins that were improved are now dreadfully heading below their starting points with management recently guiding to a 30-32% gross margin.

Despite claiming to abandon a 'growth at all costs' strategy, management's actions reveal a contrary reality, using low margin branded business to prop up growth, a strategy we fought so hard to rid from the business in 2019!

In a November 2022 LinkedIn post, Mr. Meniane stated, "the company does not subscribe to the "growth at all costs" mantra that became popular among e-commerce companies in recent years. In the present environment, he anticipates the "laser-focus on positive unit economics to be rewarded by the market."

I wish this narrative was true and we would not be in this situation today. In fact, on the recent earnings call, Mr. Meniane doubled down on the low margin drop ship business and stated that he feels it is the right approach. Unfortunately, even if the management wants to fix the private label business, it would be extremely challenging after losing our most experienced subject matter experts.

I am also interested in understanding the company's definition of "financial discipline" in light of the Q4 2023 income statement. While leadership has emphasized profitability in all transactions, the financials seem to suggest otherwise. Our ongoing narrative of 'price deflation' has led to skepticism among our industry peers. While we point to weakening consumer demand, our competitors celebrate a thriving automotive aftermarket, showcasing a stark contrast in market outlook.

Private Label Business

Our private label business, a vital source of high-margin revenue, is on the decline. This decline is not due to external macro economic conditions, as suggested on the earnings call, but in my opinion, the result of internal mismanagement of the private label business. It is evident that management is at a loss about what to fix, hence their focus on unfruitful, random projects as indicated on the earnings call and company announcements. Given the complexity of our business, our survival hinges on solutions crafted from automotive expertise and institutional knowledge.

Technology

During the 2019-2021 turnaround, substantial investments were made to improve the performance and user experience of CarParts.com, particularly through enhancements to the progressive web app, which played a key role in getting the business back to growth. However, during the Q4 2023 earnings call, Mr. Meniane stated "during 2023, we prioritized our resources to focus on removing some roadblocks in our tech stack, which prevented us from completing the rollout of some of the new capabilities we have slated for the year, but we expect to start accelerating progress this year." This issue serves as a critical warning sign. I previously cautioned the board and management team about the potential consequences of losing key talent responsible for developing these platforms. CarParts.com has shifted from being a technology-first company to one struggling with execution of technology initiatives.

Proprietary Catalog Data & Platform

Since its inception in 1995, CarParts.com has dedicated over two million man-hours to developing a sophisticated e-commerce catalog for its private label business. However, the catalog's quality and accuracy are now at risk due to a strategic shift towards the low margin drop-ship model, compounded by the loss of key subject matter experts who deeply understood our catalog systems.

The ability of the current management to maintain, enhance and/or replace these proprietary systems has been significantly weakened by the departure of these critical experts, driven away by a toxic work environment. As mentioned, recent earnings calls have brought to light roadblocks and delays in our technology stack, illustrating the problematic execution of technology projects. These issues have escalated operational risks and are now critically endangering the reliability and quality of our catalog data, threatening the viability of our high-margin private label business.

Site Consolidation

In 2020, we successfully completed the consolidation of 17 websites into CarParts.com, significantly boosting our traffic and streamlining our web presence. This strategic move led to a remarkable increase in traffic, with CarParts.com receiving over 100 million annual visits. However, in a baffling act of self-sabotage, we have reversed this consolidation by removing the redirect from JCWhitney.com to CarParts.com. This has turned JCWhitney.com into merely a brochure site, causing us to lose traffic and authority that was previously directed to our main revenue engine, CarParts.com. Additionally, management has been focused on large-scale, failing technology initiatives like "Get It Installed/DIFM" overlooking the proven strategies that have successfully driven traffic and conversion rates in the past. This misdirection is severely detrimental to our business.

According to Similarweb, in March 2024, visitors to CarParts.com declined by nearly 14 percent year over year while a good majority of our direct competitors are increasing year over year in visitors. This suggests either worsening site performance and/or a decline in organic revenue - both of which are reasons for concern.

Leadership Concerns

I have expressed serious concerns regarding the current leadership, particularly noting lack of e-commerce and automotive expertise. Two years into this leadership after being handed a winning strategy, the outcome has been very disappointing, with over 75% of shareholder value having evaporated since then.

Leadership is skilled at delivering the right words with conviction, yet their actions often reflect a different story. Interestingly, this kind of discrepancy is thoroughly explored in a book by our esteemed board member, Ana Dutra, titled "Lessons In LeadershiT: Detoxing the Workplace" (2016). The book provides an in-depth look at the characteristics of toxic leadership within organizations.

Demands for Action

The situation at CarParts.com is critical, but I firmly believe the company can be saved. I have a proven track record of success at CarParts.com and a clear vision for the future. I am confident that with the right team and the board's support, we can reverse the current course and restore CarParts.com to its former glory.

My willingness to return to CarParts.com hinges on the current state of the business, particularly our cash reserves. These resources are crucial for implementing the turnaround plan and restoring the private label business.

I am confident that with a swift and decisive approach, we can reverse the negative trends. However, if the company's situation deteriorates significantly, especially impacting our financial flexibility, it may limit the effectiveness of any turnaround efforts.

I am available to discuss my proposed solutions in more detail and share my vision for the company's future.

As I conclude, my thoughts turn to the more than 1,500 dedicated employees of CarParts.com. Your commitment and enthusiasm are what make this company great. Since founding this company in 1995, we have always valued each member of our team. Despite the challenges we've faced, your hard work has carried us through and will continue to be the key to our success. Thank you for everything; your spirit and resilience are our greatest assets.

Sincerely,

Mehran Nia

Co-Founder and Former CEO, CarParts.com, Inc. (NASDAQ:PRTS)

https://www.linkedin.com/in/mehran-nia/

Contact: niamehran@gmail.com , (310) 704-9111

SOURCE: Mehran Nia