CarLotz shutters 11 stores as it realigns for profitability

CarLotz Inc., one of several online used-vehicle upstarts to benefit from pandemic-fueled momentum, is shuttering 11 stores — half of its brick-and-mortar locations — as it dials back growth plans.

The used-vehicle consignment company, in announcing the move this week, blamed vehicle sourcing snafus and said it needed to preserve cash.

The decision to close the stores followed a "strategic review" that showed such a move was necessary to ensure future profitability. Closing those "hubs," as CarLotz calls them, will reduce the company's work force by 25 to 30 percent. CarLotz had 492 employees at the end of 2021.

CarLotz also said it was having trouble sourcing vehicles, a situation that might improve if there are fewer hubs to focus on, CEO Lev Peker said in a news release. The company will look to ramp up the number of vehicles it sources directly from consumers, reducing its reliance on auctions.

"While decisions that impact our teammates are not taken lightly and are not easy, we believe the hub closures are a necessary step to help improve the company's financial performance," Peker said.

CarLotz went public in January 2021 following its reverse merger with Acamar Partners Acquisition Corp., a special-purpose acquisition company.

Now, it joins other online used-vehicle upstarts in scaling back or adjusting operations as they grapple with the fallout from inflation, tight used-vehicle supply and the popping of a pandemic sales "bubble" that sent some digital companies' stock prices soaring in the last two years.

In May, online used-vehicle retail giant Carvana Co. cut its work force by about 2,500 — more than 10 percent — citing a first quarter in which its operations were challenged by cooling used-vehicle demand and other macroeconomic factors disrupting automotive retail.

Carvana and smaller online used-vehicle retailers Vroom Inc. and Shift Technologies have all seen their stock prices slump from highs reached earlier on in the pandemic.

So has ACV Auctions, a digital dealer-to-dealer wholesale auction platform that had its initial public offering in March 2021.

CarLotz shares have been on a downward spiral for several months. After trading for as much as $11.49 a share in January 2021, the stock closed at 46 cents on Thursday.

Retail sales at the 11 closing locations ended Tuesday, and all "hub closing activities" will be finished by July 8, CarLotz said. Another three CarLotz locations with executed leases will not open.

CarLotz estimated those closures, in addition to lessening cash burn, will reduce operations losses by roughly $12 million to $13 million on an annualized basis.

The company was still deciding whether to sublease or assign some locations to "interested parties." If sublease opportunities come to fruition for the 11 hubs and three unopened locations, CarLotz anticipates saving an additional $7.5 million to $8.5 million in occupancy costs annually.

CarLotz also thinks the closures will bring it an additional $10 million in working capital as inventory is liquidated based on the locations' estimated sale prices. But that increase will be partially offset by "one-time severance costs" totaling $500,000 to $600,000, according to the news release.

CarLotz said it hadn't yet determined contract termination costs.