Is it time for dealerships to relocate or change their retail strategy to combat rising property prices?

By Paul Smith, Director, Traka Automotive

Multi-branding is proving to be a key weapon of success for dealer groups with larger sites, as margins on the sale of new vehicles remain wafer thin - typically less than 1 per cent - and property prices continue to rise. Perhaps the exemplar in multi-branding at the prestige end is JLR which is in the midst of a £1bn rejig which will see 38 per cent of its showroom estate (85) taking on the spanking new look, shared Jaguar Land Rover sites. By the time JLR’s monumental restructure has completed in 2018 it will have 223 showrooms nationwide.

The look and feel of the new Jaguar and Land Rover sites is undoubtedly impressive. The branding and front-of-house finish is sector-leading. Free coffee and Wi-Fi, comfy seats in a dedicated customer lounge and large shiny viewing areas for both brands are a given. It makes clear sense for these two brands to be under one roof as are both owned by TATA and operate at the premium end of the market. Although JLR still runs each brand as separate businesses, there are clear synergies between the brands, especially as Jaguar refreshes and expands its range, with the latest addition being the well-received F-Pace. It becomes entirely conceivable that wealthier households might seek to purchase their primary and secondary car under one roof.

So multi-branding is a good way for larger dealerships, perhaps those with more than 20,000 square feet, to do enough business to remain profitable. To some extent it is about offering enough complementary brands to stimulate browsers to come to your site to have a look at a number of options before making their selection. It’s the reason why dealerships often cluster together into groups on motor parks to create car buyer destinations. After all, those in the market for a new car don’t want to visit multiple sites across town, but ideally go to one location and move between complementary competitor offerings quickly and easily.

Other dealer groups have used site design refreshes as an opportunity to look at more efficient use of space. For example, Sytner sites are doing away with prime visitor parking areas at the front of their dealerships and instead building new Drive Through facilities. So increasingly drivers taking their car in for a service, will drive into an arched Meet & Greet area where they are greeted, reported faults confirmed and dealer staff then drive the car away, having directed the customer to the waiting lounge or hire car pick up point. In the process, Sytner has been able to enhance the customer experience while freeing up space that can be redeployed more profitably – perhaps for expanding aftersales facilities such as smart repairs.

So where is the pressure on profitability coming from, especially given the fact that UK new car sales volumes have never been better? One of the ever-present pressures, hitting larger footprint dealerships hardest, is the rising value of land. Correspondingly, rents are rising which is impacting urban areas in the south of England particularly.

Groups that do not own the land on which their dealerships are housed, are seeing rents rising, so that in Greater London the average commercial rental price per square foot now stands at £17. In the East Midlands it is £12.06, while the East of England stands at £8.06 per square foot. The average UK franchise dealership has more than 10,000 square feet, creating an annual rental bill likely to be well over £120,000.

One way that groups are tackling rising rental prices is splitting aftersales facilities from sales. Larger dealer groups often now divide premium retail sites from PDI and service centres. So the big bucks will be spent on fitting-out the main retail site that must be in the prime location. No expense will be spared to create a superior customer experience as far removed as possible from the ‘grimy workshop-cum-car sales office’ of old. But service & PDI centres are increasingly being relocated into ‘sub-prime’ locations buried deep within industrial estates, while vehicle stock might be kept in secure compounds, ideally on even cheaper land. None of this will be seen by the customer, and it helps reduce fixed property-related costs.

But such is the pressure on dealers that some doom merchants are signalling a major shake out in traditional large footprint dealership model. Automotive analyst house ICDP (reported in the Financial Times back in October 2014) that volume carmakers - including Volkswagen, Ford and Vauxhall - had already seen a 25 per cent fall in sales volumes per dealership site in recent years. ICDP extrapolated from these numbers that a third of dealerships in western Europe – the equivalent of 14,000 outlets – might have to close by the end of this decade!

Breathing down the necks of traditional large-footprint dealerships are a new generation of digital-savvy car retailers that are looking at a completely different, much smaller footprint retail model. Rockar is one such new breed dealership which has set up a very successful 2,000 square foot Hyundai dealership in the heart of the Bluewater shopping centre. In this way, Rockar was able to anticipate 200,000 visitors to its retail outlet, translating into 1,000 new car sales, all in its first year of trading there.

The retail challenge for the likes of Rockar becomes much more about enticing shoppers in to get a taste of the Hyundai brand; ‘virtually’ experience its range and accessory options through on-screen configuration and display on large format screens; all supported by brand ‘angels’ that offer no pressure product-led advice, rather than a heavily-pressurised sales approach which some traditional dealerships are still using.  It’s a model which you can also see in the Tesla store in Westfield shopping centre and Audi City in Green Park. 

As founder of Rockar, Simon Dixon, explains:

Research from Google suggests that car buyers now make, on average, only 1.3 trips to a dealership before making their purchase, down from about four (trips) five years ago. Most pre-purchase research is carried out online. When the average dealership sells just 500 cars a year, that is about 650 trips to each dealership, compared to 27m annual visitors to Bluewater.

Rockar aligns its retail look and feel with its virtual online stores so that customers can seamlessly move between ‘bricks and clicks’ to the extent that the can complete the entire purchase online if they want to. Mr Dixon’s next venture is a new Jaguar Land Rover shop in Bluewater in the autumn – he will launch his online store a month before he opens the doors on the new showroom.

However, shopping centre-based car retailing is not without its detractors. It does not make sense commercially (or aesthetically) to run a workshop, PDI or service centre in Bluewater, for example. These will have to be located several miles away, probably tucked away in an industrial park. It seems unlikely that these new sites will do as well as traditional sites in terms of winning servicing business which, after all, is generally more profitable than sales.

Another consideration is the arrival of electric vehicles (EVs). The number of EVs on the road around the world has tripled since 2013, reaching 1.26m by the end of 2015. Within the next 10 years Volkswagen Group alone expects to bring out at least 30 new SEAT, Audi, Porsche, Skoda and VW EV models and the EV revolution will finally explode by 2025. But for it to be successful we will need lots more high speed charging stations. This presents an opportunity for dealers with strong ranges of EVs coming through.

Could these dealer groups offer service, repair and electricity charging stations in larger numbers around their chosen region(s)? These new branded charging stations could also be attached to premises for engaging with customers while they wait. Will many current petrol station sites be converted into mini dealership-cum-EV charging stations? As pressure on property continues to grow and visits into traditional dealerships head south, groups will increasingly need to do some of this sort of blue (or should we say green) sky thinking to retain their customers’ attention, loyalty and share of wallet.