Automaker Ford recently announced a direct-to-consumer sales model for its EVs. We look at why the car industry is lagging behind other retail sectors and highlight some of the advances in hybrid retail. 

Episode Sources: 

https://www.nytimes.com/2022/06/21/business/tesla-online-sales-dealerships.html

https://techcrunch.com/2022/06/02/ford-wants-to-sell-evs-online-only-and-at-a-set-price/

https://www.forbes.com/sites/briansolis/2022/02/02/the-future-of-retail-is-hybrid-and-unified-around-end-to-end-connected-experiences/

Photo by Gustavo Spindula on Unsplash

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Freda Liu: E-commerce seems like yesterday’s conversation. Everyone is online and selling their wares through numerous platforms and sales channels. But there are a few sectors where the digital world has only made a limited impact. With us today is a man famous for his limited impact, Matt Armitage.

Freda Liu: Are you one of those people with a late-night shopping habit?

Matt Armitage:

• I’ve tried to curtail it.

• And I have a wardrobe rail full of massive mistakes as a result of my somnolent habits.

• The shopping apps don’t help either, recommending all those weird and bizarrely cheap things that look alluring at bedtime.

• And your thumb hovers over and buys before your brain has time to yell no!

• Doomscrolling was a thing. We should have had Doomshopping as well.

• Since then I’ve pretty much put a ban on myself. Browse but don’t buy…

• …leave it in the shopping cart and see if you even remember, much less want to complete the purchase.

Freda Liu: Is it a coincidence that your first show with me in years is about shopping?

Matt Armitage:

• Absolutely. I’m not pushing anyone into insulting stereotypes.

• This actually links back to my recent trip back to UK.

• And some of the structural changes we’re starting to see in the retail sector.

• I was chatting to a friend about cars – yes, that is a stereotype, but I’m stereotyping myself, so that’s fine.

• We were talking about leasing cars.

• Which isn’t big in Malaysia yet. But it’s huge in the UK.

• Most of my friends are leasing rather than owning.

• My friend was telling me that his car lease expired during some of the first lockdowns in the UK.

• The car company called him up and offered him some new cars to lease.

• And, of course, he asked if he could test drive them before he committed.

• Totally normal – you want to try before you buy. Or lease in this case.

• He was told he couldn’t – because of lockdown – and that it was ‘take it or leave it’.

Freda Liu: Did he leave it?

Matt Armitage:

• Of course. Who signs a three-year financing deal on a car they haven’t seen,

• And until that phone call had probably never thought about driving?

• So he bought himself an old Land Rover, instead.

• Actually, my trip was full of people who had bought or were thinking of buying an old land rover, instead.

• Admittedly, most of them live in the countryside. So I guess that’s another stereotype.

• And while I understand that my friend didn’t want to commit to an unseen vehicle that a finance company had pre-selected on his behalf.

• The truth is that people are increasingly buying big-ticket items like cars and even homes online.

• Some car companies sell exclusively online.

• And that’s what I wanted to talk about today.

• Those changing attitudes to how we buy goods, especially for those expensive items.

• And how those attitudes are reshaping the in-store experience as a result.

Freda Liu: Is this a trend that’s being driven by companies like Tesla? The idea of bypassing traditional third-party dealerships and going direct to the consumer?

Matt Armitage:

• I think the car industry was probably heading in that direction eventually.

• And the pandemic accelerated the online buying trend, as it did with so many retail sectors.

• From a consumer standpoint, while car dealerships are generally convenient…

• In that you can head down to the lot and try out a bunch of cars and decide what you want.

• They aren’t necessarily that great for the consumer.

• Because there has to be that room for both the manufacturer and the dealer to make money.

• I’m not going to go into the ways that dealers make money – how they split revenues, upselling etc.

• You can listen to a real car expert like Daniel Fernandez on BFM’s Cruise Control if you want more info on that kind of subject.

• Back to Tesla…

• It maintains a network of showrooms and service centres, but the actual purchasing is done online.

Freda Liu: Was this a simple cost-efficiency measure on Tesla’s part?

Matt Armitage:

• Tesla was already different in that most of its dealerships were run by the company itself.

• That put them in conflict with some of the myriad state and local laws around the US which protect independent dealers…

• … and make it difficult for auto manufacturers to build their own consolidated networks.

• The dealer lobby argues that it’s better for consumers as there is always a local face for the brand.

• And someone local to go to for information, problems etc.

• So while Tesla did save some money with the reorganisation, its model was already different from the likes of Ford and GM.

• And I think it was already building to order, rather than holding inventory.

Freda Liu: You mentioned the pandemic accelerating the trend to buy online?

Matt Armitage:

• Yes. So, a lot of car companies made it easier to book a car or start that purchasing process online during the pandemic.

• Some of the newer car companies, startups like electric car makers Rivian, have been direct to consumer from the start.

• Companies like Volvo and VW started to sell to consumers directly during that time.

• Car dealerships and showrooms were closed.

• People still needed new cars and the automakers needed to keep their production lines going.

• I’ll be honest, I don’t know how companies like VW and Volvo structured those purchases.

• Whether they included local dealerships or excluded them.

• But even as we go back to normal, the car industry, or at least parts of it, seems to have learned from those pandemic lessons.

• I think this story came out at the start of June but has been updated and clarified in the weeks since.

• And that’s the news that Ford in the US is to sell its EVs direct to consumers.

• On a similar model to Tesla – fixed prices and, therefore, identifiable margins.

• Plus a lot more control over their supply chain.

• No over-production, with the possibility of inventory sitting idle at some dealers.

Freda Liu: What are we likely to see if more companies follow Ford’s move?

Matt Armitage:

• It seems that one of the motivating forces behind Ford’s move is the profit margin Tesla gets on its cars.

• Something around USD15k I think the Ford CEO is quoted as saying..

• And let’s not forget that despite making millions of cars more than Tesla every year, Tesla is worth multiples of Ford’s value in market terms.

• So this isn’t just about current business practices and quarterly earnings calls.

• This really is about the future of Ford’s business.

• Which is going to be electric.

• Whether we like it or not, it seems that EVs are the future of the industry.

• Simply because countries are starting to legislate against traditional combustion engines.

• With some countries aiming to phase out petrol and diesel-powered vehicles by the end of this decade.

Freda Liu: Have we reached that point where electric vehicles are up to the task of replacing those combustion engines?

Matt Armitage:

• Increasingly. Especially given that EVs in general are quite new.

• Yes, the history of EVs stretches back to the dawn of motoring.

• But in practical terms we’re looking at 20 to 30 years.

• It’s a false equivalence because the world is so changed and different, I know,

• But at a comparable point in the combustion engine’s history we were only at Ford’s Model T.

• Now EVs have a range of several hundred km.

• We’ve reported on technologies that could cut charging times to under 10 minutes.

• We’re starting to see the emergence of EV delivery vans and lorries.

• We could still do with a ready-for-market breakthrough in battery technology to make the technology lighter, more efficient and faster to charge.

• But even given the existing technology and developments surrounding it, we can start confidently planning that future.

• Yet Ford’s dealer system is essentially a legacy of that first age of motoring.

Freda Liu: Let’s go back to that question about what we should expect from Ford and other car companies…

Matt Armitage:

• It seems as though they’re trying to play both sides for the time being.

• They’re committed to their legacy dealer systems – which date from that same period of the model T.

• And that commitment is often enshrined in national or state laws.

• So I would expect to see some serious, coordinated lobbying by automakers to change those laws that prevent them selling direct.

• Which will have them directly opposing the lobbying groups that represent their own dealers, which will be weird.

• Ford has already separated its EV division from the combustion manufacturing side.

• So they’re effectively different companies.

• I think we’ll see more manufacturers following suit.

• And they will maintain those existing dealer networks for petrol and diesel vehicles until such time as those vehicles are phased out.

Freda Liu: How is that likely to impact consumers?

Matt Armitage:

• Well, Ford’s CEO described the move as akin to Target – the bix box retail store in the US.

• In the face of online retailers like Amazon, Target hasn’t disappeared.

• There are still physical Target stores but now you can also buy from target online and have your purchases delivered.

• In response those physical stores are morphing, offering more in terms of hybrid experiences.

• Which is something I want to talk more about after the break.

• Back to cars tho…

• Customer satisfaction in terms of buying online seems mixed but broadly in favour of the trend.

• Consumers seem to like fixed prices.

• I think we’ve all had that experience of buying a car and not really thinking we got a good deal.

• Or that someone else was being offered a better one.

• Fixed prices help. Factors like the car being delivered to you at your home or office.

• Some manufacturers will even let you return the car within a week or two for a full refund if you’re unhappy.

• Some companies, like Tesla and Rivian, I think, will send a technician out to do minor repairs at your home.

• On the negative side, some buyers have noted that fewer service centres makes servicing more arduous, requiring long trips.

• Or of issues that the online or email support staff simply don’t respond to.

• With a local dealer, you always have that option of getting in someone’s face.

• So it’s definitely a mixed experience from the consumer perspective.

• But as I said, we’ll get more into the way those consumer experiences are changing after the break.

Freda Liu: When we come back: moving into the fast lane of hybrid retail.

Freda Liu: Before the break we were looking at a landmark change by Ford to move the sales of some of their vehicles online. We touched on the idea of hybrid retail experiences.

Matt Armitage:

• Yes, so this is where we start to move away from cars and into the broader retail sector.

• Massive sighs of relief from anyone who isn’t into cars and has stayed with us this far.

• One of the things that Ford has asserted is that it will work with its existing dealers to manage this transition.

• But in the media statement, the CEO made clear that the company’s standards were going to be, in his words: brutal.

• And that tells you a lot about the current consumer experience when buying cars:

• The principal only has limited control over your experience at the showroom, because they’re all run by independent companies.

• And that’s a really weird anomaly in this world of global brand experiences.

Freda Liu: In terms of the uniformity and unity of that consumer experience?

Matt Armitage:

• Yes, you can go into a Starbucks or McDonalds or Sephora or Apple Store anywhere in the world and your experience will be broadly similar.

• There may be minor regional quirks, but your brand experience will be uniform.

• Not just in terms of the décor, the products or the staff uniforms, but those psychological cues.

• The things you don’t always notice:

• The lighting. The music that’s being played. The smell. Maybe even the temperature of the stores.

• Those micro cues that tell you you’re somewhere familiar. A place you can trust.

• Given that for most people cars are the most expensive financial commitment we make other than our homes.

• That lack of uniformity of experience from dealer to dealer is remarkable.

• Why do we have more trust, for example, in the quality of a hamburger than we do in the quality of a car?

• You would expect the reverse to be the case.

• From my own, anecdotal experience, there’s much more uniformity and control exercised by brand owners in the luxury car sector.

• So it isn’t as though it’s absent from automotive retail.

• But it doesn’t explain that huge experiential gap between a Ferrari and flame-grilled beef.

Freda Liu: So, in effect this about rationalisation and maintaining that brand identity and experience?

Matt Armitage:

• I think those are factors, for sure.

• It’s also about achieving tesla-like margins and pushing the market cap of the company.

• It also reflects the way we shop – most of the stores we go to – outside of grocery stores.

• Are single brand. Example - There are a few traditional style sports shops around, but mostly we go the Nike or Adidas or Puma store.

• And often, the stores that sell multiple brands – Footlocker or JD Sports for example – are specialists.

• They sell limited editions, or runs that are exclusive to their chain.

• So they’re adding value to the brands rather than subtracting.

• The same with a lot of multi-brand beauty stores.

• It’s often about the chain’s exclusives.

Freda Liu: Is it fair to say that we’re seeing those barriers start to blur, and less separation between brands’ digital and physical identities?

Matt Armitage:

• Increasingly in physical stores you find notices that push you online.

• That might be for extended ranges of the clothes. Special offers. Or for a wider variety of sizes and colour.

• As much as the idea of free returns on online clothing is a draw, sometimes you just want to feel the fabric, or try something on.

• To see whether that screen colour and the actual colour coincide.

• Which they may not – different devices reproduce colour in dramatically different ways.

• So in that sense, the physical store becomes much more like a showroom than a retail store.

• You’re there to try – and later you buy online.

Freda Liu: It might sound to some people like a massive duplication of effort…

Matt Armitage:

• Yes, partly because we aren’t looking behind the curtain, or the fitting room, as it were.

• I mentioned that example of wider sizes and colours.

• Think about the logistics that take place to keep say clothing stores in operation.

• The stock they have to keep on hand.

• The size those stores have to be to showcase all of the products and have storage space for all those off the rack items.

• One of the biggest cost savers Amazon has is its distribution centres.

• Giant warehouses that allow it to send most items from one place direct to the consumer.

• So what looks like duplication from a consumer perspective may really be streamlining from the brand’s position.

Freda Liu: Does that mean it’s becoming less important where we actually buy the product as long as do buy it?

Matt Armitage:

• Yes, so this is where, even with their own emergent e-commerce channels, markets like automotive are way behind most retailers.

• The thinking is now much more about unified experience platforms that allow the consumer to purchase your products where they feel most comfortable.

• That might be through a brand app or online store, it could be through a third-party e-commerce marketplace like Amazon or Shopee.

• Or integration with an e-wallet provider.

• It could be in your good old physical store.

• Most of all, it changes the way that brands communicate with consumers.

Freda Liu: Is that in terms of optimising each sales channel?

Matt Armitage:

• Ultimately, for you as the brand, you’re thinking about those overall numbers for sales.

• Rather than where they’re sold.

• Yes, you want to make sure you optimise each one of your sales channels.

• Each channel will be creating its own streams of data that help you to anticipate where the market is heading next.

• And you want to make sure those channels all support each other.

• But you’re not necessarily locked to those channels.

• If consumer behaviour moves in a different direction, then the brand changes its focus accordingly.

Freda Liu: That comes back to that central question: How do you maintain that brand uniformity when the channels are so diverse? And in some instances, they may be controlled by third-party marketplaces?

Matt Armitage:

• With the platforms that a brand controls it’s simpler and more straightforward.

• Which I’ll get into in a moment.

• Those third-party marketplaces will work with larger brands pretty closely.

• To make sure the products offered or are highlighted reflect the brand’s current position.

• But brands also have to be aware of the logistical limitations of the marketplace: how quickly products can be dispatched,

• What the delivery time and experience is like.

• Some brands may opt to keep the fulfilment part of the process in-house and simply use the marketplace as a digital mall.

Freda Liu: Does that leave physical stores as something of an orphan child? Part of a declining, legacy model?

Matt Armitage:

• If you handle the transition well, then those bricks and mortar stores become a reflection of all the sales channels.

• Already, in a lot of instances, you can buy online but the product is delivered in-store.

• Increasingly, you can opt for kerbside pickup; you don’t even have to park or even get out of the car.

• So those physical stores are still important. They’re still a showroom.

• And their purpose also shifts – as I said from retail to trial.

• Which also changes the way you staff them.

• Rather than the bored retail assistant who asks if you want any help and when you say no switches back to contemplating the futility of existence and chewing gum.

• You want product specialists. That’s why I keep mentioning beauty products.

• We talk about Apple and its Geniuses: its product evangelising retail staff – well, makeup counters have had geniuses for decades.

Freda Liu: The OG influencers!

Matt Armitage:

• Seeing your staff as influencers makes a lot of sense.

• As brands and influencer behaviour are becoming more entwined.

• We’re seeing a lot of brands moving from sales-based advertising to tutorial-based.

• So it might be a Facebook Live or a TikTok tutorial that shows you how to use the product rather than pushing that hard sale.

• Loyalty. Retention. Relationship.

• And those sales staff are promoted by brands as influencers – whether nationally or locally.

• We’re seeing more of those retail staff building their own customer networks, through SM and messaging apps.

• Reaching out and doing this kind of tutorial-based networking.

• And again, where those eventual sales take place, is less important that the fact that they do take place.

Freda Liu: Are we seeing more augmented and virtual reality technologies being used across the retail sectors?

Matt Armitage:

• Interestingly, this is one of those areas where beauty and cars collide.

• Not the best phrased sentence I’ve ever come up with.

• But yes – there are plenty of brands that have AR apps to help you try on the product in much the same way that you use an insta filter.

• Then there are the creepier ones, like Amazon’s cameras that kind of scan your body and let you try on clothes.

• There are plenty of 360 AR car type applications. Virtual showrooms that allow you to explore the interior and exterior of cars.

• We saw this explosion over the pandemic of people buying houses they’d never seen because they weren’t allowed to travel.

• So VR and AR tools allowed them to tour homes.

• I’ve got to admit, that would scare me, making a purchase of that scale for something I’d never even visited.

• But then, there’s a whole generation that doesn’t really have those hang-ups between online and offline.

• Which is really what this show is all about.

• The generation of consumers who will be happy to take a car for a test drive in the metaverse,

• And who will expect to have the same performance and experience from it when it eventually shows up at their door.

Richard usually does some version of this in the outro:

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