Can the High Street learn from car dealerships?

By Professor Jim Saker, director of the Centre for Automotive Management at Loughborough University
 

One of the strange things about working for a university is that you often get the local press ringing up for a quote on something that has happened in the economy.

In the past three months I have been asked to comment almost daily about the demise of High Street chains such as Jessups, HMV and Comet.

The problem is that as with academic commentators on TV it is very easy to come across as stating the obvious. 

Phrases like ‘the High Street has become Amazon’s showroom’ or ‘they failed to compete with the out of town supermarkets’ are all too common, but add little value to the argument. 

It is, however, interesting and also refreshing when someone from our sector speaks out on the subject.

Tax drag

Robert Forrester, the chief executive of Vertu Motors, in a guest blog for AM-online, argued that High Street chains can learn from motor retail’s adaptability. 

The basis of his argument is that the High Street retailers are facing long- term property leases that were negotiated in a time of greater economic buoyancy.

Five years ago dealerships faced similar high payments for the same reasons, but have successfully beaten these down. 

He also argues that there is a ‘tax drag’ in the form of car park charges that add cost to any in town shopping experience. 

He also identifies the competition that the internet has brought to High Street retailers. In reality much of what Forrester says is correct, the High Street is where the retail motor sector was five years ago.

There are, however, a number of significant differences which he does acknowledge.

The scrappage scheme gave our sector a boost when it was most needed.

This boost in sales has continued to have the knock-on effect in aftersales and in a strange way seems to have built confidence in consumers’ minds which is still reflected in the high car sales of last year. 

The internet has had a different type of effect on our sector by comparison to that found on the High Street.

The internet has undoubtedly changed the balance of power in the sales negotiation with customers coming into car showrooms better informed.

The strange thing is that by empowering the customer it appears that trust in franchised dealerships has started to rise as it becomes apparent to the customer that they are not ripped off by unscrupulous salespeople.

As a result, only a small percentage of people actually buy a car online.

This differs dramatically from the situation found on the High Street where products can easily be sourced and purchased on the internet.

The real issue is that over the past five years, both dealers and High Street retailers have gone bust.

However, in the retail automotive sector it appears that the sites are usually taken over by dealer groups encouraged by manufacturers not wishing to have gaps in their geographical coverage. 

On the High Street this option is not available with few retail groups being strong enough to take over failing businesses.

Property costs and overheads

The real question is why some businesses fail while others succeed.  Forrester’s tenet about property costs and overheads is exactly right from an internal perspective.

By facing high fixed costs the business inevitably becomes uncompetitive.

But there is another perspective which leads to a fall in market demand. If the business does not have a value proposition that people want then the business fails.

A number of the High Street retailers were unable to offer a value proposition that the customer wanted. 

By going to the store the customer needed to see that it offered some additional value for the effort of getting there.

If not and the product was available online, the rational response would be to buy it on the internet. 

Some retailers like Next, Zara and John Lewis have continued to thrive by having effective and efficient value chains and combining it with an online presence and high levels ofin-store customer service.

In reality, the same principle applies to our sector.

If the customer feels they are getting value from coming to our dealerships they will continue to come.

Where and how that value is being delivered has changed over the years.  In a paper we wrote at Loughborough in 2000 it was argued the dealers that would succeed would be those able to combine the ‘bricks and clicks’.

The dealerships and groups that are able to engage with their customer online and then add value when the customer comes in are thriving in this competitive market place.

Those that fail to add value will simply add to the number of business failures. Can the High Street learn from car dealerships? 

Yes, but it does depend who you are looking at.