A mall store works for a mainstream brand
Printed in Automotive News Feb. 7, 2011
LOS ANGELES -- After the giant Potamkin group opened a Hyundai showroom in a Sacramento shopping mall in December, it took only a month to sell enough new cars -- about 35 -- to cover the operation's small startup costs.
Potamkin President Barry Frieder says The Hyundai Store in the Westfield Downtown Plaza mall was an inexpensive way to boost exposure and generate leads for Potamkin's two other area Hyundai dealerships. And it could be a wave of the future.
Setting up a 7,000-square-foot showroom in a shopping mall normally would create a stir with other same-brand dealers in a community. But Frieder could get away with it because he is the sole Hyundai retailer in greater Sacramento.
Potamkin Automotive Group Inc. operates a Hyundai store in southern Sacramento and one in nearby Roseville. The two sell about 200 new vehicles a month.
Dave Zuchowski, Hyundai's U.S. sales boss, said the mall location is a "perfect example" of what can happen if one dealer controls a market.
"Some OEMs [think] it's nice to have a bunch of dealers competing with each other to raise the water level," Zuchowski said. "But if you have the right operator, he's going to raise the water level on his own."
Most Potamkin dealerships are on the East Coast, with clusters in Miami and New York City. The group ranked No. 17 on Automotive News' 2010 list of the Top 125 Dealership Groups with revenue of $821 million.
Besides the Hyundai stores in Sacramento, Potamkin operates two Auto Gallery locations in greater Los Angeles, which sell luxury brands such as Audi, Porsche, Ferrari, Maserati and Lamborghini.
This isn't the first time Potamkin has tried a mall showroom. In 2010, it ran its Auto Gallery Audi dealership from a temporary location in the Westfield Topanga shopping mall in Canoga Park, Calif., until a new store was built. Now, it has a Lamborghini outlet at that mall.
That gave Potamkin the confidence to try a mainstream brand in a mall, said Chris Shaffer, the partner who manages Potamkin's Hyundai dealerships in Sacramento.
The Hyundai Store gets 35 to 40 visitors a day. Frieder expects the mall location to sell 35 to 50 new Hyundais a month.
There are about a dozen showroom staff members, including a finance manager and a sales manager. The 11 vehicles on the showroom floor and the store's small inventory come from Potamkin's two other Hyundai stores. There's no service or parts department on site.
Frieder says a mall store costs a fraction of what a traditional dealership does. With it, Potamkin avoided paying millions in expensive California land and construction costs.
Potamkin spent $50,000 to $70,000 to renovate the retail space. The group pays rent, utilities and salaries. The relatively low upfront costs make it possible to walk away if the store is a dud.
"It allows us, without a significant capital investment, to get into a market with an exit strategy should it not work," he said.
"To buy land for a four-acre or five-acre business operation is $4 million to $6 million," Frieder said. "That is going to give you a rent factor of $35,000 to $50,000 a month. This gave us a rent factor of about $11,000 per month, and the operating costs are relatively insignificant."
Inside the mall store, customers are greeted by product specialists.
"The person that the customer is meeting is not a salesperson because they're not commission-based," Shaffer said. "Their job is to show the car, and if the customer leaves with information [and a price] then they've done a good job.
"Going into a mall here and being able to actually sell cars is possible because, in essence, we own the market," he said. "There's nobody there to protest us going into that location because it's all our market. Try to do this in another market ... and you'd never be able to do it." c
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