AUTO MARKETING: SLOW-GROWTH CARMAX OPTS FOR MARATHON RACE: PIONEER IN FIELD TRANSLATES FROM CIRCUIT CITY

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When Circuit City Stores opened its first CarMax Auto Superstore in 1993 in Richmond, Va., some observers predicted the outsider would be eaten alive.

But CarMax is around and still growing. The company that pioneered the used-car superstore concept has taken a deliberate growth strategy, in contrast to the meteoric rise of AutoNation USA.

SUCCESS ELSEWHERE

But the race will likely be a long one, and CarMax managers have proven themselves very successful in other arenas.

Richard Sharp and Austin Ligon, Circuit City chairman-CEO and CarMax president, respectively, used lessons learned in other industries in automotive retailing. By their reckoning, the used-car industry represented a huge potential market, with estimates as high as $300 billion, featuring no major players.

Messrs. Sharp and Ligon and their team felt there was no reason why some of the practices at Circuit City's electronics stores couldn't be transferred to selling used cars-a broad selection of brands, training and systems to support employees, no-haggle prices and saturation advertising campaigns.

SIMPLE PROCESS

In addition, reasoned Circuit City executives, most people hated the whole time-consuming ordeal of shopping for used cars. Consumers, they believe, would embrace a simplified process, geared to eliminating the haggling, pressure and confusion.

When contacted, executives declined to comment for this story, citing a quiet period imposed by the U.S. Securities & Exchange Commission.

CarMax's showroom strategy is to sell a cross-section of popular late-model used cars, with vehicles coming from rental car fleets and lease returns. Major brands are sold side-by-side, just like Sony and RCA TVs are sold at Circuit City stores.

In addition, CarMax will buy an individual's used car even if that person isn't buying a vehicle from CarMax. The tactic is intended to lure some of the huge "casual sales" market-consumers who normally sell cars through newspaper classified ads.

CarMax lets customers browse the entire inventory at a computer kiosk. Automobiles are organized by category and make in a huge parking lot in which every space is bar-coded.

These innovations caught on with consumers, who found they liked to shop the company's seven lots without interruption. They could also view competitors' late-model products side by side. For example, Isuzu Troopers would be located among other sport-utility vehicles such as Toyota Land Cruisers and Ford Explorers.

WOMEN FAVOR PROGRAM

Women seemed particularly fond of the CarMax idea. Less brand loyal than men, they showed a preference for shopping for good deals.

Following the lead of Circuit City, CarMax spent lots of money on advertising. CarMax print ads quickly blanketed newspapers in cities like Atlanta, the first city with two CarMax stores. TV ads, from DeVito/Verdi, New York, took light-hearted but effective jabs at the conventional methods of buying and selling used cars.

CarMax's willingness to make waves in the automobile industry didn't stop with used cars. The company electrified the auto world in late 1995 by acquiring a Chrysler-Plymouth-Jeep-Eagle franchise at its used-car superstore in Norcross, Ga.

TABOO IN INDUSTRY

In doing so, CarMax violated an industry taboo: that dealerships wouldn't be owned by publicly traded companies. A firestorm of protest from Chrysler dealers followed.

The segment is so large that CarMax can still gain a sizable market share concentrating primarily on used cars, says Greg Balter, a research analyst for Donaldson Lufkin & Jenrette, adding that neither CarMax or AutoNation will have more than an 8% share of the market by 2001.

Ursula Moran, a research analyst for Sanford Bernstein & Co., says CarMax and parent Circuit City differ from main rival AutoNation in strategic focus.

Circuit City/CarMax's "strengths lie in retail execution," she says. "They're not big-picture concept people to the same degree. They don't wake up in the morning and say, `We're going to transform an industry. They wake up in the morning and say, `We're going to run the best retail operation we can."

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