CarMax: Next-gen store, small markets
Prototype plan: iPads, touch screens, unlocked cars
| Sponsored by |
| » | ||
| » | ||
| » | ||
| » | ||
| » |
Reprints
Print
Respond
As it approaches its 20th anniversary, used-car giant CarMax Inc. has developed a next-generation store and has its eyes on entering "50 to 100" smaller markets, a top executive says.
The CarMax test store opened in February in Chattanooga. Another such store is to open this fall in a market CarMax has not identified.
CarMax has spent three years developing technology, new ways of handling customers and a distinctive interior look for the prototype.
At the Chattanooga store, vehicles in the lot are unlocked for easy customer access. Embracing the latest technology, employees carry iPads. Touch screens are inside the store and at stations on the lot, enabling shoppers to search for vehicles, then locate them by row and parking space number.
To expand its reach into smaller markets, CarMax is considering cities with populations of 200,000 and under, Joe Kunkel, CarMax senior vice president of marketing, said during a recent public presentation. He said CarMax would need to cut its costs to operate in smaller markets.
CarMax now puts its stores in mid-sized and large markets. It defines mid-sized markets as those with TV viewing populations of 600,000 to 2.5 million people, according to its annual report.
Kunkel says CarMax doesn't want to leave any openings for competitors, and part of that comes from the company's history. It was founded, then spun off, by big-box home electronics retailer Circuit City, which went out of business after losing out to Best Buy.
"One of the benefits of being an offshoot of Circuit City is that we've developed this very strong fear of somebody coming along with a better box, having seen what Best Buy did to Circuit City," Kunkel said during a June 27 presentation at Oppenheimer & Co.'s 12th Annual Consumer Conference in Boston.
"The idea of sitting back, just feeling good about all the things we've done so well, doesn't rest well in our DNA. So we started about three years ago and said if there was a company like Best Buy that came out and tried to beat us ... what's the best possible way to sell used cars? We came up with our concept, and we call it our next-generation store."
Publicly held CarMax of Richmond, Va., is the nation's 77th-largest retailer of new vehicles, according to Automotive News' list of the top 125 dealership groups in the United States. Its new-car dealerships sold 7,679 new cars and trucks in the fiscal year that ended Feb. 29, down 7 percent from the previous year, according to CarMax's annual report. Sales included those of five stores, one of which closed during the fiscal year.
But it's No. 1 in used-vehicle sales. Its then-108 locations sold 408,080 used cars and trucks in the fiscal year, up 3 percent from the previous fiscal year, according to the company's annual report -- and more than twice the sales of its nearest competitor, AutoNation Inc., in the 2011 calendar year.
CarMax executives declined to be interviewed for this story. But the presentation by Kunkel and the company's annual report shed light on its plans.
CarMax built its brand on no-haggle prices, a low-pressure buying environment and salespeople who are paid a commission "generally based on a fixed dollar-per-unit standard," its annual report says.
True to its big-box retailer roots, each of CarMax's 112 used-vehicle dealerships carries a broad selection of 250 to 350 vehicles. Its Web site, carmax.com, gives customers access to its inventory of about 30,000 vehicles.
In the company's early years, CarMax stumbled, building stores that were too big and experiencing losses from fiscal 1993 through 1999. It took the company seven years to hone its pricing system, which enables it to adjust vehicle prices based on market conditions such as changes in gasoline prices, Kunkel said.
"Lots of people can copy our customer offer, but there is nothing but time and experience that would teach you to change prices," he said.
But after almost two decades in business, CarMax felt a need to do something fresh, he added.
| CarMax comparison | ||
| Here's how CarMax stacks up against the average used-car department at a franchised dealership. | ||
| CARMAX* | FRANCHISED** | |
| Avg. used-vehicle selling price | $18,995 | $17,267 |
| Retail gross profit | $2,177 | $2,161 |
| Gross as % of selling price | 11.4 | 12.5 |
| *March 1, 2011-Feb. 29, 2012 | ||
| **Calendar year 2011 | ||
| Source: CarMax annual report for fiscal 2012; National Automobile | ||
| Dealers Association | ||
Warm people, cold store
Research showed that consumers find CarMax's salespeople warm but its stores "cold and sterile," he said.
In an effort to fix that, the Chattanooga store has a suspended ceiling, touches of light wood and splashes of its signature blue and yellow color scheme. Big-screen, touch-operated TV monitors are located throughout the store so consumers can search for vehicles on their own.
A section of the store is reserved for consumers who are there only to sell a vehicle. They deal directly with a CarMax buyer/appraiser and can sit in on the appraisal.
In other CarMax stores, the customer who wants to sell a vehicle hands off the vehicle to a salesperson and never has direct contact with the person who appraises and makes an offer for the car, Kunkel said.
Technology has always been a big deal at CarMax.
CarMax places bar codes on every parking place in its lot and on each vehicle, says Glenn Mercer, an independent consultant who has studied CarMax since its inception. That makes each vehicle easy to find -- and all salespeople at the Chattanooga store carry iPads to hasten the process.
There also is an electronic scanner at the lot gates that tracks every vehicle that leaves on a test drive. That, along with its ability to track shoppers' searches on its carmax.com site, gives the company reliable data about what consumers are shopping for.
CarMax has an advantage over dealers who just track sales, Mercer says.
"They know, for example, that red Camrys are selling better on the north side of Atlanta than red Camrys on the south side of Atlanta, and they'll adjust prices on the fly," says Mercer, a former McKinsey & Co. partner. He conducted a study for the National Automobile Dealers Association delving into factory-mandated dealership renovation programs.
| CarMax on the grow | |||
| Fiscal year | Stores | Revenues (BILLIONS) | Used vehicles sold |
| 2008 | 89 | $8.20 | 377,244 |
| 2009 | 100 | $7.00 | 345,465 |
| 2010 | 100 | $7.50 | 357,129 |
| 2011 | 103 | $9.00 | 396,181 |
| 2012 | 108* | $10.00 | 408,080 |
| *4 more stores have opened since March. 1 | |||
| Source: CarMax | |||
Rivals weigh in
Steve Landers, whose RLJ McLarty Landers Automotive Holdings operates a store in Huntsville, Ala., that competes with CarMax, calls the company "just another competitor."
"They've got a system that they use and it is unique to them and they do it well," adds Landers, president of the privately held company. RLJ McLarty Landers, of Little Rock, Ark., ranks No. 19 on Automotive News' list of the top dealership groups in the United States. It sold 15,067 used vehicles in 2011.
Cary Donovan, director of used-vehicle operations at the privately owned Swope Automotive Group in Louisville, Ky., calls CarMax a "friendly competitor."
He says CarMax generates business for his service department. CarMax stores sell vehicles that are still under factory warranties that can only be honored by franchised dealerships.
CarMax's four new-car dealerships sell Chrysler Group brands, Toyota/Scion and Nissan.
"I see the CarMax van in our service department dropping off their employees and porters to pick cars up," he adds. Swope ranks No. 71 on Automotive News' list of the nation's top dealership groups and sold 14,616 used vehicles last year.
Mercer says CarMax is successful by most measures. But he says that the technology that gave CarMax its edge almost 20 years ago is getting cheaper and more widely available. He likened it to software that enables consumers to do complex income-tax returns that they once would have turned over to professional tax preparers.
"Their exposure right now is that the lead they established in information technology is probably no longer significant," he says.
The Chattanooga store was CarMax's 108th store, and it has opened four more since. It plans to open six more by March and 30 to 45 more during the next three years, according to the annual report.
CarMax has a presence in most regions of the country but still has about half of the country to go in terms of filling in specific cities as it seeks a national footprint, Kunkel said in his presentation.
CarMax has not focused on smaller cities in the past but is trying to squeeze costs out of its system so it can enter those markets profitably, he said.
He added: "If we are successful in that, over the next couple of years that opens another set of 50 to 100 cities that we can go to."
You can reach Arlena Sawyers at asawyers@crain.com.
