Tag: Paragon

In the Amazon Wilderness

I concluded Car Dealer Megatrends with the clear and present dominance of consolidated groups, which I like to call the Best Buy phase.  Today, I will indulge in a little futurism, and explore the Amazon phase.  In the Amazon phase, it will be possible to buy a new car enitrely online and have it delivered.

By 2025, experts estimate 30-40% of car sales will be online.  The high end of that range is from Mark O’Neil.  Used cars are easier to sell online, witness Carvana, Vroom, and Shift, but new cars will be there too.  An estimated 25%, and that’s only seven years away.

The industry is rapidly solving problems like pricing and trade valuation.  The only challenge people still talk about is the test drive.  Carvana solves this with its seven day return policy, and Shift will bring the car to you for a test drive.

 “The current dealer model is not a dying breed,” Benstock said. “It’s dead. It’s absolutely dead.”

I will order a new BMW sight unseen, because I know the product and I trust the manufacturer.  Their online configurator is awesome, and I really would press the “build and ship as shown” button, although the process isn’t quite there yet.  We’ll come back to BMW later, but for now let’s assume a test drive is required.

The tension between Best Buy and Amazon centers on a practice known as “showrooming.”  This is where you sample the product at Best Buy, interrogate the Best Buy sales associate, and then turn around and order the product from Amazon.  Amazon even makes a clever app you can use to scan product codes while you’re in Best Buy.

As auto retail moves into its Amazon phase, I can imagine the same challenge for dealers.  You have invested in a monument to your manufacturer’s brand image, where customers can sample the product and then go order it online.

I had been pondering the showrooming challenge for a while when I ran across this piece in the Wall Street Journal.  Nordstrom is opening stores with no stock, where shoppers can try on clothes and accessories, and then have them delivered.

It will contain eight dressing rooms, where shoppers can try on clothes and accessories, though the store won’t stock them.

The Nordstrom story reminded me of the old “catalog showrooms” operated by mail order retailers like E.L. Rice and Service Merchandise.  Ironically, this was the last gasp of mail order, put out of business by brick and mortar retailers – including, ultimately, Best Buy.

All of this goes to show that, in the Amazon phase, showrooming and fulfillment can be disconnected.  Where the customer goes, to test drive and learn about the vehicle, does not have to be the dealership or even affiliated with the dealership.  This opens up a world of new possibilities.

I can think of several applications for standalone test drive centers.  For instance, suppose a manufacturer wanted to enforce its ideas about how to present its vehicles, and also – since this is the Amazon phase – protect its own position online.

Were it not for U.S. franchise laws, manufacturers would run their own retail outlets.  In Europe, they have company stores, where ideas about brand image, sales training, and product positioning do not depend on a network of autonomous dealers.

An OEM test drive center would bypass the dealer network (or complement it, if you prefer).  It would be staffed by salaried, factory-trained product experts with no other objective than to educate customers in the finer points of their company’s vehicles.

There would be minimal inventory, attractive video displays, simulators, and samples of paint and fabric.  No transactions would take place, but there would be plenty of Wi-Fi bandwidth and gourmet coffee for the online shoppers.

As I said, this is just one scenario.  The new techniques of digital retail will create untold opportunity for dealers willing to adapt.  Our exploration of the Amazon phase has just begun.