When you read headlines that announced how Carvana sold 177,549 used vehicles in 2019 and became the third largest seller of used vehicles in the United States, it got your attention. When you read that Tesla is projecting to sell 500,000 vehicles in 2020, it got your attention. Anything Amazon does seems to turn to gold and that certainly grabs your attention. These kinds of headlines and information have caused business owners to ask, “Should we go online with our products?” “Should we eliminate our personnel and structure our business to an online format?” These are great questions and ones you should be asking. But before you answer, let’s take a look at retail and sales history. This may just help you find the answers you are looking for.
Let us start with Sears and Roebuck. Up until 1925, they were strictly a mail order catalogue company. The Sears catalogue lead the way in overall retail sales annually as a single selling source. However, Richard Warren Sears saw that, collectively, he was being outsold by the department and retail stores in the cities. Sears believed, correctly, that the reason was due to people being able to experience the product live and that people enjoyed the guidance given by knowledgeable in store clerks and salespeople. A person needing a single pair of shoes would open the Sears catalogue and order one pair of shoes. In a retail store, that same customer was far more likely to buy more than a single item, doubling and tripling the average sale total. So, in 1925, Sears opened their first retail store and for 65 years they dominated the retail sales landscape with both the catalogue and retail stores. The catalogue showed people the product. But that was only part of the process. Richard Warren Sears was a master at getting people excited about visiting his retail stores with huge “in store” only promotions where the sales receipts were bigger, and customers could walk out with the product in hand.
History tends to repeat itself, as can be seen currently with Amazon. They have become a behemoth in the world of retail sales. Amazon has single-handedly put many retailers out of business, put more on the ropes, and at the very least, has forced all remaining retailers to reassess the way they do business. But if you are watching closely, you are seeing Amazon doing the same thing Sears did. They are going brick and mortar. In the past three years, they have acquired Whole Foods, opened books stores, and started their own grocery/convenience store called Amazon GO. They are also in the process of developing Amazon “Smart Stores” and Amazon department stores.
In addition, Wayfair, a company that started out as a strictly online furniture store, is now in the process of opening furniture stores in malls across America.
Why are Amazon, Wayfair, and other online retailers doing this? Simple. Because, as easy as online shopping is, 86% of all sales made every day in the United States are still done through person to person interaction. These sales are typically for larger dollar amounts and generate stronger brand loyalty. Consumers do in fact, still like talking to people when making a purchase, especially for big ticket items.
I’m addressing this subject because there seems to be a trend emerging. Automotive dealerships appear to be in a mad rush to move as much product and services to online as possible, eliminating all human interaction. This format provides little reason for a customer to visit the auto dealership and its many departments. I think this is happening because of the media spin surrounding companies like Carvana, Tesla, and Amazon. There is no doubt that these companies are moving a ton of product, but should that scare you? Absolutely not. It does, however, require your attention. Before you throw-in the towel or before you go too far in the wrong direction, consider this – Can we beat them at their own game and still maintain and grow the in-person dealership experience? It’s certainly possible, and definitely worth the effort, since we know that the opportunity for big ticket sales is alive and well in person to person sales. I hope that by looking at each company, one by one, you will see the merits of maintaining the personal service aspect of your business:
Carvana: While 177,549 units sold in 2019 may sound like a lot, it’s not, when you consider that over 40 million used vehicles were sold in that same time frame. Even though they are continuing to grow, they are beatable. How? Offer what they can’t, a showroom experience that is inviting and an onsite service department with highly skilled technicians. Although I have never been a fan of offering a free maintenance plan to a vehicle owner, to beat the Carvana model, I would certainly take a hard look at it. You can also match what they do. You can offer a 7-day test drive with the same or more relaxed rules than they offer. You can match the sales and delivery offers. The best news is that you don’t have to have a big vending machine to pull it off.
Tesla: Although Tesla has started making believers out of naysayers over the past year or two, you do not have to continue your game on the defense. Again, the solution here is to offer and do what they cannot. An inviting showroom is still a winner with consumers. The numbers are with you on this. While Tesla did sell 500,000 vehicles in 2019 and will likely sell more than that per year in the future, it still means that over 16.5 million people went to a dealership to buy a car. That number shoots up to about 55 million plus, when you add in the used vehicle market and used car lots. You should also be able to absolutely destroy them in the area of service and repair. Tesla’s network is short on locations, technicians, and the parts needed. This is a concern that is going to become a crisis in their highly publicized “at your home” service model. As more and more people invest in a Tesla, it is going to become overwhelmingly challenging to provide that type of service on any maintainable level. Just because it is a Tesla, does not mean that a technician is going to want to visit a customer’s home and work outside in the freezing cold, blazing heat, pounding rain, or driving snow. Qualified technicians will prefer to work for traditional shops that are climate controlled, with lifts, tools, and parts at their fingertips. The problem of finding qualified technicians to repair and service their vehicles is going to be as great or greater a problem for them in the short term. Now is the time to exploit their miscalculation.
As far as the Tesla power plant is concerned, it definitely woke everyone up and showed them what is possible. But to think that companies like Ford, GM, Nissan, Honda, Toyota, BMW, Mercedes, Chrysler, Kia, Hyundai, etc., are going to roll-over and not provide answers to that development is unrealistic. When these traditional manufacturers answer the call, they will do so with a dealer support network. I believe there will always be a place for the dealer network, if the dealer network and manufacturers go on the offensive and force companies like Carvana, Tesla, and the many followers that are sure to come, to go on the defensive. The idea is to make them compete with what the dealer network has to offer.
It may sound like I have a beef with Carvana, Tesla and the other companies that are starting to follow in their footsteps. I do not. I think what they are doing is timely, inventive, and on some levels, necessary. But just as the history of sales has taught us, customers like interacting with knowledgeable clerks and salespeople when spending their hard-earned money. I do not think that is likely to change.
I believe the day will come when businesses like Carvana and Tesla will have to please their stockholders with bigger and bigger sales. Those will eventually have to come from selling accessories and other products at the time of sale. That will take salespeople and a support team. Those employees will need a building to make that happen. These same companies and their stockholders will also start to wonder why they don’t have the most lucrative part of the vehicle sale – parts and services. They will get into that business too, but that will also require a building.
This scenario is more likely to happen sooner than later. The only question is, will the automotive business let the newbies define the industry, or will they force the newbies to follow their lead.
Convenience and giving the customer exactly what they want and deserve in any sales transaction is always the number one goal. We are lucky today because technology is helping us to be more efficient at providing that very thing for our customers.
History is a great teacher. It has taught us that catalogues, internet shopping, and technology can bring a lot to the table in the way of sales with minimum human interaction. This is not likely to change. But history has also taught us that people like dealing with people, especially when making large purchases. The human interaction delivers the best results to the bottom line and that is not likely to change, either.