Larger showrooms do not mean more sales, the opposite is true

This post is attributed to my colleague Tim Rose at AM Magazine in the UK It poses some very interesting views on the future direction of retail outlets as a result of some major research carried out in the UK regarding solus vs multi-franchise outlets....


"Research from a global automotive consultancy is likely to add weight to some carmakers’ demands for solus dealerships when dealers’ current contracts end in 2013.

US-based Urban Science, which has offices in all the major European and Asian markets, has announced findings from a retail study of 770 UK dealerships which indicates sales performance could improve by operating showrooms dedicated to single franchises and by using innovative sales and marketing ideas.

However, it also encourages manufacturers to reconsider their demands for larger showrooms.

“In today’s automotive retail market, dealerships could benefit greatly by challenging some of the accepted norms in auto and adopting some practices commonly found within retail,” said Paul Dillamore, managing director of Urban Science’s UK office.

“Current thinking is that larger showrooms will increase sales. However, we found that dealers focused on a single brand and making the right level of investment in marketing, their sales force and fleets of demonstrator vehicles were the most sales-effective.”

Study results included:

  • There is a strong link between sales effectiveness and a broad demonstrator fleet. Manufacturers should consider utilising smaller locations in more creative ways, for example, shop-like environments that leverage the internet and deliver demonstrators to consumer’s homes
  • Single franchise dealerships have a 30% better sales effectiveness rate than multi-franchise dealerships, demonstrating a strong link to a dealerships’ brand focus. Manufacturers may want to reconsider the current trend of multi-franchise arrangements
  • Marketing investment has a direct impact on sales performance, indicating that dealerships and OEMs should invest in more targeted marketing efforts
  • Dealers benefit from having the right number of sales staff. On average, dealers have one salesperson for every 70 retail vehicles of potential. However, the most sales-effective dealers have one for every 55 units of potential. Getting the level right could result in an extra 50 vehicle sales a year
  • Contrary to popular assumption, there is no correlation between a dealer’s sales effectiveness and the time they have been trading. The
  • implication is that new dealers can ramp up their effectiveness quickly, so manufacturers should not beafraid of making changes to their sales networks
  • Finally, while profitability is impacted by service performance, sales effectiveness is not, suggesting a greater separation of sales and service establishments is likely in the future.

“Automotive retail should be viewed as a constantly evolving model,” Dillamore added.

“Data and science are critical tools to create an understanding of how manufacturers and dealers need to adjust their retail strategies to meet changing consumer behaviours and increase sales.

"Bottom line is that OEMs need to be more experimental in their franchising options as they consider ways to increase sales effectiveness.”

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