![]() Driving back out to pick up and re-refurbish a returned car destroys the unit economics of a sale.Īt a system level, Carvana’s business model, which involves last mile delivery and pick-up, is more complex than CarMax’s, whose process in turn is more complex than those of traditional dealers. That a buyer’s expectations match what’s displayed on the website is critical given that Carvana offers free test drives and 7-day money back guarantees. ![]() The stores and employees facilitating each step of sales process were replaced by substantial upfront investments in technology and last mile logistics, such that a shopper could feel okay about buying and funding a car without seeing it first in person, secure in the knowledge that what they previewed online was an accurate representation of what would be delivered to their front door. ![]() Used cars were refurbished and centralized in even larger 100k-200k square foot inspection and refurbishment centers (IRCs) facilities (a typical CarMax store ~40k-60k square feet). Twenty years later, Carvana pushed further along the variable/fixed spectrum. Rather that having a salesmen roaming small plots of land with limited inventory, relying on heuristics and rules of thumb to buy and sell cars through tense negotiations, CarMax concentrated units in large footprints with 4x-5x more inventory than the typical dealer, used technology to manage inventory and understand supply/demand conditions, and imposed no-haggle fixed pricing. ![]() CarMax pioneered this transition in the early ‘90s, applying the lessons of mass retail from its now defunct parent, Circuit City. 13, 2020)Īs previously discussed, the cost structure of used car retailing has become less variable, more fixed over the years. ![]()
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