HAS THE RETAIL AUTO STORE RUN ITS RACE?

For as long as there have been cars, there have been car Dealerships. But will that always be the case? With the rising costs of meeting manufacturers’ requirements, not to mention the expense of prime commercial real estate, are we approaching a time when the bricks and mortar showroom Dealership is no more?

Like so much else these days, the retail auto industry is experiencing a shift online. According to a 2014 study conducted by McKinsey & Company, roughly 500,000 cars are traded on eBay Motors’ website every year. AutoScout24, Europe’s largest online auto store, receives over 300 million virtual visits per month. More than a third of customers say they would consider buying a car online.

Once upon a time, prospective buyers would make an average of five visits to Dealerships prior to purchasing. In some areas and brands, that is down to just one. Customers now come into Dealerships with their research done. They know what is available and they know what they want, which means the role of the Dealer must shift from that of information-supplier to experience-broker.

Consumers have become far more savvy and willing to shop around. Nearly 90 per cent of potential car buyers visit Dealer and OEM websites in the early stages of their search. A third use comparison and review sites. Plenty – usually women – use social networking sites to gauge others’ experience with a Dealer.

Buying a car used to be all about the car. Now it is all about the customer. What do customers want? Mobility. The ability to access anything and everything at the touch of a button or swipe of a screen, no matter where they are. The future of car sales lies in an omni-channel approach incorporating digital into a marketing strategy aimed at providing the customer with the best experience.

Take a look at other retail businesses. High Street shops are struggling against online stores that don’t have the expensive overheads associated with a premium physical presence and the need to stock the store. It happened to the electronics and publishing industries; why will it be any different for car Dealers?

Online retail sales grew globally from just four per cent of all purchases in 2009 to 15 per cent by 2013, with the trend continuing upwards. How long until Dealers and OEMs decide it is not worth the millions of dollars required to maintain and upgrade large showrooms and lots, if they can better serve the customer via a combination of digital experiences and a reduced physical presence? Those who don’t adapt could well go the way of Borders bookstores, which disappeared almost overnight.

It has already begun.

In the United States which, along with Europe, has experienced a 15 per cent drop in the number of Dealerships in the past five years, the emphasis is increasingly on developing a flagship store in city centres, or even a completely digital retail store. Where’s Tesla’s showroom? Entirely online.

Audi has opened digital showrooms in London and Beijing. The Audi City Dealership in London is the smallest Audi Dealership in the UK, but has proved enormously popular. Despite just 420 square metres of display space and only four models on display, the store received 50,000 visits in its first year of operation and sold seven cars per week. Get this: half of those buyers did so without a physical test-drive, such is the virtual experience provided.

A customer relations manager guides customers through the brand and helps them build their car digitally from hundreds of millions of potential configurations. They can see their virtual car, real-size, on a digital screen ‘powerwall’. (It doesn’t have to be a powerwall; Nissan personalises the experience using tablets.)

The new approach has proved ridiculously successful, resulting in a 60-70 per cent increase in new car sales, with 75 per cent of buyers first-time Audi drivers. Because they can see so well what their finished product will look like, these buyers pay on average 120 per cent of the retail price due to their uptake of optional extras.
So not only does downsizing have the potential to dramatically reduce costs, but embracing the digital age can also drive higher gross returns. Combine the two and it’s happy days for your bank manager.

Market research consultants Frost & Sullivan predict car makers will open around 100 city flagship stores globally by the end of the decade, taking the car-buying experience to the buyer, aiming to be a one-stop shop providing the complete brand experience. In Australia, this could also mean pop-up stores in suburban shopping centres.

This time next year, online will account for 50 to 60 per cent of automotive sales leads, compared with 15 per cent just a year ago.

In the US and Europe, manufacturers are preparing to spend from $500 million to $5 billion over the next 12 months to embrace the shift, with up to 30 per cent of the space in traditional Dealerships set to be devoted to technology.

What are you going to do? Will you thrive or die? Are you Borders or Audi?

 

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