Given the rapid change in retail markets and consumer buying habits generally, have you stopped to think about how the retail automotive environment will look like in five years time, let alone in a decade?
With this in mind, alternate views are developing regarding the evolution of car retailing and particularly, how current facility programs and methods of automotive retailing may impact the competitiveness and profitability of automotive retailers.
The discussion between automotive retailers and franchisors concerning the costs of factory image or facility programs brings to light the concern that programs previously adopted in the automotive retail market generally may not be preparing automotive retailers for a possible shift in automotive retail.
US based automotive consultants Frost & Sullivan believe franchisors' will increasingly apply an omni-channel strategy to market and sell their cars to customers. Franchisors will choose either an evolutionary approach or a completely revolutionary, omni channel approach. The evolutionary approach (bricks and clicks approach) will see automotive retailers operate from the dealership and through online / mobile showrooms. This would see a partial replacement of the salesman with the online system, with delivery to take place at the dealership. The revolutionary, omni channel approach will operate one unified integrated channel of bricks and clicks bringing the new car buying process completely online. Although the physical component of new car sales is still seen as an important part of the buying process for many customers, it can be replicated through digital simulations, augmented reality and showing how the car is born and delivered through cameras on the shop floor.
The National Automobile Dealers Association (NADA, USA) has released research where it discussed the evolution of automotive retailers in respect to Factory Image Programs. Phase two of this research, a combined effort with the Canadian Automobile Dealers Association (CADA) released in February 2013, expands upon the following three layers of facility programs:
- Expansion – forecasting higher future sales or market share requiring expansion of the entire store, for example adding interior space, service stalls and parking space to cater for new car models;
- Modernisation – bringing the store up to contemporary standards, for example upgrading fixtures and fittings or providing free Wi-Fi. This is focused around attracting new customers or keep existing customers satisfied with a pleasant and up to date environment; and
- Standardisation – ensuring that all automotive retailers look similar to other automotive retailers under the same brand through the use of identical materials, furniture and layout reinforcing the power of the brand by providing a similar look, feel and experience.
NADA/CADA research revealed that the expansion of an automotive retailer, in particular the expansion of the service division, will result in increased profitability. Modernisation was harder to justify and standardisation seemed unbeneficial with little hard evidence existing as to the return on investment in facilities, either to the franchisor or to the automotive retailer.
The research also highlighted the repercussions of failing to follow cyber retail trends by referencing the recent collapses of major retailers such as Borders and Best Buy outlets in the UK. NADA/CADA believe the significant amount of expenditure required by a facility program, not to mention the detailed program specifications and financial implications, places a question mark on the extent of its feasibility in the future. Global online retail sales have increased from 4 per cent in 2009 to 11 percent in 2011 confirming a growing trend in the shift away from the conventional bricks and mortar store.
We have seen recent activity demonstrating this trend in Australia with Subaru offering exclusive online sales of the BRZ Coupe. As reported in Fairfax Media (Drive.com.au 16/07/2012), buyers spent $37,000 each online with Subaru taking orders totaling $5.5 million in just three hours. Despite only 50 BRZ Coupe's purchased by automotive retailers as demonstrators around Australia, Subaru had no issues with sales. Buyers were happy to buy the car physically unseen, with access to online reviews and video demonstrations. Subaru directed customers to its website, where the customer paid a deposit, executed a contract and selected a convenient retailer to effect delivery.
The NADA/CADA studies concluded that dealerships will remain intact by 2025 however with a more efficient design through the removal of support functions to an offsite location and new format approaches to support the growth in the service department. A snapshot of the future may include manufacturers opening flagship digital stores in expensive streets in the major cities of the world, shrinkage of dealership space by about 20 per cent and digitalisation of the dealership stores with increased consumer interactivity. By 2020 China and Europe will be the key markets to promote the growth of new car eRetailling followed by the US.
Moore Stephens Automotive has attended and presented at the Australian Automotive Dealers Association (AADA) and NADA conferences, and have access to a wide range of automotive data. We regularly complete consulting assignments where we analyse automotive retailers' profitability and profit potential, specifically focusing on dealership expansions and / or relocations. This work is undertaken with our published Key Performance Indicators and our automotive industry knowledge. If you would like to discuss the content of the article, or the services offered by Moore Stephens Automotive, please contact your local Moore Stephens Automotive representative.
This article originally appeared in the autumn 2013 Moore Stephens quarterly automotive update. To read the complete newsletter, please click here.
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