Cramer thinks the problem pre-dates the botched takeover, though. In his opinion, Pep Boys has an outdated business model. Unlike its competition, he noted Pep Boys is not a pure play on auto parts. Instead, it gets one-half of its revenues from selling auto parts and one-half from servicing cars.
“The fundamental problem here is that these two businesses simply do not belong under the same roof,” Cramer complained. “The kind of person who takes his car in to get serviced is very different from the kind of person who buys his own auto parts directly.”
In addition, Cramer said Pep Boys has not executed well. Compared to other auto parts retailers, Pep Boys’ stores are considerably bigger. In fact, they are just too big for Cramer. They have too much exposure to discretionary merchandise, which he said doesn’t sell well in this economy. It also has a troubled balance sheet, he added.
For investors interested in the auto parts retail space, Cramer recommends avoiding Pep Boys and going with rival AutoZone instead.