Frost & Sullivan Market Insight   Published: 4 Jan 2013
Future of Retailing in the Car Industry
Date Published: 4 Jan 2013

By Sarwant Singh, Partner and Practice Head, Frost & Sullivan

Frost & Sullivan's new study on future of car retailing suggests that Car companies will increasingly apply an Omni channel strategy to market and sell their cars to customers. The study finds that about 4% of all new cars sold in future, about 4.5 million cars, could be sold completely on-line by 2020 (There were about 5000 new cars sold solely on line in 2011). New cars will be sold via a number of channels, leveraging the existing dealer network and new flagship stores, but also through online and mobile channels, with sales staff even travelling to customers to showcase the vehicles digitally.

In 2009, only 4 percent of all retail sales globally were on-line. A trend which accelerated to about 11% of all sales in 2011. In certain industries, like publishing & entertainment the leading retailers already collect over 50% of their revenues on-line which has forced shut down of major brick and mortar stores like Borders in the US who have failed to follow the trend. In UK, Best buy opened 11 new mega stores which were selling from £10 Kettles to $100k Tesla's but had to shut them done within 18 months of its opening as it failed to read that one in four customers were buying electronic products on-line and used their mega stores only for browsing. Could this happen to the car dealerships too in the future?

Yes it can and dealerships need to therefore innovate. The good news is that most OEMs already are experimenting or planning to get into the on-line bandwagon. Ford UK sells new cars through its website http://www.fordretailonline.co.uk/ and similarly Dacia http://www.dacia.co.uk/ has entered the UK market primarily pushing its on-line sales channels with dealerships for back up. Upcoming Shop-Click-Drive website (http://shopclickdrive.com/) is General Motors' new initiative to sell cars online with association from its participating Chevrolet dealers. New car OEMs like Tesla (for Model S, X) and Fisker (for Model Atlantic) are already facilitating complete car buying process online with assistance to its customers in different geographies. Short-term success of Subaru, Fiat, Smart and Volkswagen with online auto channels like eBay, Taobao, Jindong, Alibaba and Gilt.com is expected to pave the future of possibly also using other independents platforms for pushing their products. Car companies are also planning to use Fashion Merchandising on-line in the future e.g. Fiat500byGucci and Fiat500byDiesel. This trend is also visible with premium OEMs like Jaguar which targets to sell its first 30 models of XJL Ultimate via online retail.

The study suggests that OEMs will choose either an evolutionary approach or a completely revolutionary, omni channel approach. In the evolutionary, Bricks and clicks approach, car Retailiers are expected to operate both brick & mortar dealerships and online / mobile showrooms in independent silos. Key aim is to replace the salesman in the dealership store with an on line system. Delivery of vehicle to happen at dealerships. The revolutionary, Omni-channel approach will operate one unified integrated channel of bricks and clicks where in the entire new car buying process is carried out online (mobile and non-mobile) including finance and insurance deals, with minimal to possibly no need for brick and mortar dealerships in the future.

There are two important dimensions to a new car buying process - the emotional and the physical touch - that need to be mastered to create a winning click business. In the emotional dimension customers typically need to be able to have empathy with the brand and the vehicle, and it needs to be able to infuse emotions.  Then the physical part involves the touch & feel of the metal, the leather and the drivability, handling and steering feel of the car. Both these dimensions can be enhanced, and not diminished, by the on-line channel and OEMs are developing new creative ways of digitally enhancing the emotional feel of the vehicle through simulations, augmented reality and showing how the car is born and delivered through cameras on the shop floor. For the test drive, OEMs like BMW are creating new solutions like BMW on demand where one can rent, even if not afford, the high end models by the hour at realistic prices. Car companies are also working with car sharing and rental companies to provide test drive experiences.

Future will see car companies pushing real estate price by opening flag ship digital stores in expensive streets in major cities of the world like Audi with Audi city http://audi-microsites.com/audi-city/en/. BMW plans to use flag ship stores like the one in London's most expensive street in Park Lane, with dedicated staff providing information and marketing for its new iBrand.

One of the key macro to micro implications of this mega trend is that we will see shrinkage of dealership space by about 20% and it will pave way for digitalisation of the dealership stores, with interactivity with the customer a key focus. The role of the salesman will have to change to be more of a facilitator, and training of sales force will need to evolve. OEMs will need to also invest in an integrated channel strategy and IT platform which will need to be able to scale up their offering to country wide solution from day 1 as internet buyers can be sitting and ordering anywhere in the country. Car retailers will have to look towards futuristic technologies such as augmented reality and gamification into training for their dealership staff in order to motivate and inspire sales staff. Premium automotive OEM's are taking guidance from leaders in consumer industry especially in luxury (Burberry) and electronic retail (Apple) to understand the implications to their Retail strategy.

Frost & Sullivan study suggests that by 2020 China and Europe will be key markets to promote the growth of new car eRetailing followed by U.S. Currently U.S. faces large scale hurdle in implementing online new car retailing due to state franchise laws and universal opposition by evolutionary new car dealers.

Do not be surprised to see your local dealership closing in the near future.

These findings are taken from Frost & Sullivan's two recent studies on Brick and Click in Retailing and Future of new car eRetailing in the Automotive Industry.

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