What is the new normal for franchise retail?
Earlier this year, we revealed the findings of a comprehensive study, conducted by world renowned industry consultant Glenn Mercer, which explored what the new normal is for franchise retail and how retailers can drive growth in the near future.
Glenn interviewed over 80 leading franchise retailers and examined historical and current market data to establish what retailers can expect in the coming months and years. So what did he find?
Limited growth, but opportunities for retailers with the right focus
The research indicated that most franchise retail departments expect to see flat levels of growth in the future, with analysis suggesting a 1.5% - 2% growth year-on-year for franchise retailer profitability.
However, there are variances as to this level of growth.
Based on the data and retailer interviews, both new car and finance & insurance (F&I) departments are expected to see a slight downturn or flat growth. This is due to the much-publicised new car market dynamics and manufacturers responding with price cuts. The slowing of consumer demand for new cars is also impacting F&I, with lower new sales combined with regulatory pressures leading to lower penetration. However, F&I is seeing a boost in the used segment.
Used car departments are expected to see modest growth, with retailers who took part in the research indicating they are focussing on this area to compensate for slowing new car sales.
However, it is in aftersales that retailers see the biggest opportunity for growth, and indeed the outlook is for strong in aftersales departments. Many retailers indicated they have moved a higher level of profit responsibility to aftersales, highlighting that this is the area or their business that they have the most control over.
How can retailers drive growth
The research identified four key areas that retailers can focus on to drive growth.
Retention - The cost of retaining customers is far lower than the cost of acquiring customers, with positive service and aftersales experiences the key lever that drives retention.
Cost reduction – Automation is vital to lowering costs and enhancing efficiency. Automating helps to standardise processes and limit costly errors.
Achieving scale – Scale enables retailers to invest, centralise and diversify which, combined, leads to better group profitability. Larger stores and pooled facilities enable retailers to benefit from economies of scale.
Unlocking the promise of IT – Investing in IT enables retailers to drive efficiency and respond to changes in the market quicker than those who have yet to implement effective IT solutions, enabling retailers to out manage the competition.
We go into more detail into how retailers can drive growth by focussing on these four areas in our The Road Ahead for Automotive Retail report which you can view here.
But it’s not just these factors that can drive retailer profits higher.
Retailers also need to focus on the fundamentals by choosing the most effective marketing to surface stock to buyers, enhancing their pricing strategy to improve profit and speed of sale and diversifying souring strategies to ensure they have the right stock for their local market.
With 10.3 million unique buyers on our platform each month, and unrivalled market data and insights, Auto Trader has the tools you need to drive your business forward.
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