CarMax, which started the big-box approach to retailing vehicles in 1993, finally may be on the verge of profitability.
Since 1993, others, including AutoNation Inc., have taken the big-box concept and run faster and harder. As a result, CarMax has yet to reach the mammoth proportions or success of its parent, Circuit City Stores Inc.
But the company is growing steadily. It has 21 new-car franchises and 30 used-car superstores at 35 locations.
Despite a lot of speed bumps over the past six years - including losing money every year since it opened - CarMax is a success, said President Austin Ligon, who helped conceive the company.
'We've been a big success with the consumer and have unprecedented levels of sales,' said 48-year-old Ligon. 'Our per store volume is way ahead of any public or private dealer group. You don't find anybody else out there who sells more than 4,000 (new and used) vehicles per location.
REACHING `CRITICAL MASS'
'We've had to learn as we go along. We're going to hit about $2 billion in sales this year, which is about the critical mass we need to get to make a profit.'
CarMax lost $23.5 million on sales of $1.47 billion at its new-and used-vehicle stores for the fiscal year ending Feb. 28.
While Circuit City provided the company with startup capital, CarMax has operated mostly on its own since then, Ligon said.
CarMax's stock price hovered around the $5 mark last week, less than half of its 52-week high of $11.
Ligon said the company expected to lose money for several years, but added: 'We had hoped to break even last year; we're projecting break-even to a modest loss this year.'
Still, Ligon says CarMax is giving consumers what they want:
Fixed no-haggle prices on new and used vehicles
A wide selection of vehicles -about 300 to 400 vehicles per store
A customer-friendly selling environment
Those elements are credited with being a catalyst for the recent retail revolution and forcing the industry to rethink basic assumptions about how vehicles are sold. CarMax's use of touch-screen kiosks in the showroom that list a store's entire inventory, ushered in a new phase of high-tech retailing for the auto industry.
Now, CarMax is testing a program in Los Angeles in which shoppers can buy a vehicle over the Internet and the dealership delivers the vehicle.
CarMax is conducting the test with its LAX Chrysler-Plymouth-Jeep and LAX Dodge dealerships in Los Angeles that it purchased in May.
The company announced that it has delayed going into the Los Angeles market with CarMax-brand used-car superstores until 2000 but plans to open a superstore in Nashville, Tenn., this month.
While what consumers want has not really changed since CarMax opened its doors six years ago, Ligon said, the retail auto industry and CarMax have.
For one thing, new car competition became more intense over the past two years as manufacturers stepped up their incentive war.
To compete and to take advantage of the red-hot new-car market, CarMax began adding new cars to it operations, Ligon said. It acquired its first new-car franchise, a Chrysler-Plymouth-Jeep store in Atlanta in 1996. Ligon said that within 18 months that store was the second-largest Chrysler-Plymouth-Jeep dealership in the United States.
Unlike other public auto companies that purchase large dealerships or dealership chains, CarMax's new car growth strategy mostly is to purchase franchise rights and whenever it can, add the franchise to an existing used-car superstore location.
NEW, USED TOGETHER
For instance, new 1999 Nissans are side-by-side with late-model used Fords in CarMax's Rockville, Md., showroom.
And in its Laurel, Md., location, new Mitsubishi vehicles are grouped together on one side of the showroom floor, and a variety of late-model used vehicles are on the other.
However, several manufacturers will not allow their new vehicles to be displayed in the same showroom as used vehicles.
Ligon said he believes that having new and used vehicles at the same location gives the new-car brand exposure to the floor traffic generated by the used-car superstore.
Also, CarMax initially thought that its superstores, which ranged from 50,000 to 60,000 square feet situated on 12 to 14 acres of land, would draw customers from as far as 40 miles away in large metropolitan areas.
However, the company discovered that because of competition and traffic congestion, consumers would drive only 15 to 20 miles to its stores. So in those markets the company built too few stores and the stores it built were too big.
To remedy that, the company took four of its low-volume stores last fall and converted them into satellite stores, Ligon said.
While CarMax's satellites have as much inventory as hub stores, satellites do not have full reconditioning operations, purchasing and business office teams. They depend on their hub stores for those services.
Satellite stores will have 12,000 to 14,000 square feet, and sit on about five acres.
'We have the consumer concept pretty much right. So what we've been working on is how can we do that most economically,' Ligon said.
'In some markets we've done it extremely well and become very profitable very quickly. In other markets it has not been as profitable quickly. We've had to work on that.'