Last month’s column generated more emails than any other that I’ve ever written. After years of telling dealers they needed to get online all it took was the near collapse of the Western world’s economy to get through to you. You’re a hard bunch to motivate.
The reason I’ve been so gung-ho on the web was because it was the only practical way for a dealership to dramatically grow its revenue. A dealership could do nothing and float along with the economy, and we’ve seen what’s happening to them. A dealership could try to expand it’s physical presence into other markets by opening more shops, but that’s expensive, difficult, and risky. Or a dealership could take on the web in a big way.
On one hand, it’s good that so many of you seem to be doing this now. On the other hand I think a lot of you may have missed the window of opportunity. At least as far as jumping into straight e-commerce goes. Especially if my email load is any indication. I know of at least 10 dealerships that say they are going to jump in. Add to that the huge number that didn’t write to me, the number of dealerships already doing it, and of course the huge pure-play e-commerce guys like MotorcycleSuperstore and RevZilla, and as you can see, the pool is pretty darn crowded now.
So given this situation, I want to end my series of columns for 2009 playing Nostradamus and set the stage for a plausible future that I think you need to be thinking about, if not outright planning for.
The year is 2012. The previous two years didn’t provide the much hoped-for economic recovery (think I’m being overly pessimistic? Read this: http://blogs.harvardbusiness.org/tjan/2009/09/the-next-crisis-coming-in-2011.html). The economy as a whole managed to eek out a small amount of growth but only enough to keep it from sliding backwards. What’s worse is that it proved to be a totally jobless “recovery.” Consumers in the USA didn’t have the disposable income nor the security necessary to fuel the powersports industry at a level necessary to maintain it’s current model. More and more dealers closed. So many closed in fact that large urban centers around the US were now without a single powersports dealership. OEM’s were sitting on warehouses and leased lots full of vehicles that were working on their second or third birthday. Production back in their respective home countries was at a virtual standstill.
The dire economic situation had now forced the OEM’s (as well as parts, accessory, and gear manufacturers) to rethink not only their own business models, but the overall business model for our industry as a whole. The idea of having literally thousands of typically undifferentiated retailers across the country selling virtually undifferentiated products out of establishments that by their very nature were burdened with unsustainable overhead and other expenses had finally proved its ultimate folly.
Customers still wanted their motorcycles, ATV, PWC’s, etc. The OEM’s still wanted to stay in business producing them. The ultimate problem was the distribution and retail sales system. Finally, the smart OEM’s hit on a model that had worked before. They looked at the personal computer market pre-Dell and realized that there was an opportunity to leverage the phenomenal opportunity that the internet provided and essentially sell semi-direct. Customers would shop on the OEM’s, pick out the vehicle and options, and then buy it online.
However, unlike the relatively inexpensive and “basic” home PC, the products in our industry presented a level of technical, financial, and legal complexity that they still required one more node in the supply chain. Unlike a PC from Dell, the vehicle would not be shipped directly to the end customer.
The solution was to evolve to a model that traded information for inventory. Vehicle and PG&A inventory was now held as high in the supply chain as possible. What were once “dealerships” that occupied ten’s of thousands of square feet were now transformed into small “authorized delivery, setup, and service” locations. It was a radical transformation from huge dealerships to many more boutique-type establishments that now focused on much more high margin business activities such as the F&I portion of the sale, vehicle service and warranty work, and so on.
The fundamental discovery that allowed this model to work was the realization that the just-in-time logistics costs to get the right vehicle to the right delivery point at the right time could be done far more economically than the aggregated real and opportunity costs of the old (i.e. current) way of doing things.
Customers also shop for OEM branded and produced PG&A on the OEM’s site and have the opportunity to take delivery (for installation or set-up for instance) of the products from participating retail/delivery locations for a revenue share with the OEM.
These Delivery, Setup and Service locations were now composed of mostly high-magin activities and were relieved of much of the non value-added overhead burden from the previous industry model. However, because there was the potential for so many more locations in any given market, the emphasis on quality and high levels of customer service was even greater.
So what’s the moral of this cautionary tale? It’s this: “if you think the internet has been disruptive to your business so far, you’ve most likely not seen anything yet”! Our industry has not yet even begun to scratch the surface of what the internet and all of it’s prodigal technologies and business practices can do for (or to) us.
I’m sure a lot of you are shaking your head and saying: “this guy’s nuts!” Keep in mind I was telling you all two years ago to get into the e-commerce game. I’m sure more than a few of the dealers trying to finally get into the e-commerce game once said the same thing about selling on their websites. Most of you didn’t move until it was too late on the e-commerce front. What if I’m right about this? What are you going to do to prepare?
Tags:Column, dealerships, E-Commerce, ecommerce, internet, motorcycle, powersports, Powersports Industry, selling-online
