A car is one of the biggest purchases most consumers make, but the process of buying one, especially used, has long been one of consumers’ most dreaded retail experiences. From the moment it debuted in 1993, CarMax set out to change that with a focus on honest sales interactions and simplified processes. Thirty years on, CarMax has become the largest used car retailer in the U.S., with 240 locations across the country and more than 800,000 cars sold in its last fiscal year.
But the rise of online-only used car dealers like Carvana and Vroom — which also set out to evolve the car-buying process albeit through digital solutions — threatened to chip away at CarMax’s dominance. So in 2018 the retailer embarked on a five-year digital transformation journey aimed at making every stage of the car-buying journey omnichannel.
“Five, six years ago the consumer was in most aspects of their life getting a better level of service — they were getting personalized experiences at Starbucks, they could buy online and pick up at the store at Target,” said Jim Lyski, EVP of Strategy and Product and Chief Marketing Officer at CarMax in an interview with Retail TouchPoints. “The result was that instead of just comparing things within each category, they started saying, ‘Well, if I can have it here, I want it over there too,’ and we saw that sweep through retail. Automotive retail was slower to the party, but once the consumer starts getting into that mindset, they start thinking, ‘If I can get a personalized experience for a $5 cup of coffee, I better be able to get a personalized experience for a $20,000 vehicle.’ And they’re right.”
So Lyski and his team set out to give it to them. Now, every step of buying or selling a car at CarMax can be done online or in-person — including many processes that most other retailers never had to worry about digitizing such as buying back products and financing purchases.
The result has been not only a more personalized buying journey, where customers can pick and choose what parts of the process they do from their home or at the dealership, but also a streamlining of the experience itself. For example, if a customer completes their financing approvals and selects their vehicle online, what used to be an approximately five-hour experience at the dealership turns into a 30-minute exchange to sign some paperwork and pick up their new car, said Lyski.
The process has taken years of investment and effort, but from Lyski’s vantage point it was absolutely critical to the future of the company.
The Unique Challenge of Making Car Shopping Omnichannel
In reality, most consumers don’t actually want to shop for their car wholly online, said Lyski, and in fact, the portion of completely online sales CarMax makes are still relatively low (14% in the most recent Q4 earnings, up from 11% in the prior year).
What customers do want is the ability to complete parts of the process online, said Lyski, “for example, applying for financing. Nobody wants to sit in a dealership and try to remember all their income data, their tax returns, their credit history, all with somebody breathing down your neck trying to sell you a car. They want to do that at the kitchen table when they have a little bit of time and can access their computer. And more and more, they also want to do much of the purchase journey online at their own pace. They want to start and stop, revisit it later, bring in their spouse.
“[We said] we already have the best brick-and-mortar experience, now we’re going to build out the best ecommerce experience and then the hard part, we’re going to seamlessly integrate those two so you can do any percentage via any channel and still get a world-class experience,” Lyski added. “That’s our vision and that’s what we’ve been executing against.”
Dealing with the Unique Nature of Each Used Car
Easier said than done, especially because the process of buying and selling used cars presents a number of challenges that most retailers haven’t had to address. First, “every car is a snowflake,” explained Lyski. “Each car has a different history, different mileage, a different way it’s been driven, so I only have SKUs of one.”
The second major challenge is that every consumer is a snowflake too when it comes to auto financing. “Less than 10% of people can just say, ‘I want that car,’ and write a check; 90% are going to require financing, and the fact that everybody’s personal credit history influences their financing rates” means that the end price for each car will be different for each consumer.
Add to that the issue of fulfillment when dealing with a product that weighs more than 3,000 pounds and takes up quite a bit of space. “All of our cars are available nationwide,” said Lyski. “If you’re picking out something very common, you probably just pick one [at a dealership] close to you, but if you’re looking for something unique, we’re probably going to have to ship it to you.”
Transformation Takes Time
The first step in solving for all of this was getting CarMax’s data in order, said Lyski: “We knew that there was no way could create the seamlessness we wanted without accurate, accessible data. [When we started] we had a data swamp, it was just nasty to get to the information. We turned our swamp into a nice data lake, and then we took the data lake and we put it in the cloud, so now it was accessible by whoever needed it whenever they needed it. That was a massive endeavor. I just explained in 60 seconds what took us more than two years to do, but it was fundamental.”
The next step was to create the ecommerce framework for shopping CarMax’s national fleet online, which included another massive investment in digital merchandising. This was critical because “the website is our showroom now,” Lyski said. “Nobody comes to the store without going online first, I mean nobody.”
But the real game changer was bringing the financing process online. CarMax started small, with online pre-qualification, but the actual loan approval still had to be completed at the dealership. Now CarMax has brought the entire loan approval process online.
This capability rolled out nationwide earlier this year and means that customers shopping the CarMax site will see the exact rate that applies to every car online across multiple finance partners. More importantly, this also means that customers can now shop the site, filtering by monthly payment amount.
“A lot of dealers have these claims about, like, 2.9% financing, but everyone knows that only 1% of people get that 2.9% financing, for everyone else it’s significantly higher,” said Lyski. “What we’re able to do now is say, ‘These are the numbers.’ If you gave us correct information, you’ll see the exact monthly payment you’ll be making.”
About one year earlier, CarMax also digitized the processes around customers selling their current vehicle, which for many people is a crucial first step before they even think about which new car they want. With Online Instant Offer, customers can now get a quote for the value of their current car within seconds. The result has been another significant reduction in the drawn-out dealership experience. Where the on-site appraisal experience used to clock in at one hour or more, if a customer uses Online Instant Offer before bringing that car in, it can now be as quick as 15 minutes (assuming everything the consumer put in online was truthful and accurate).
The final big piece of the puzzle was taking the equivalent of a traditional retailer’s POS infrastructure and re-platforming those legacy systems to fit into the cloud-based architecture that makes it all possible.
All of these digital optimizations have helped CarMax not only streamline the process but also personalize it. “Now we let you decide how much of the process you want to do online or in-store; it’s totally up to the customer,” said Lyski. The result is a car-buying experience that is attuned to individual purchasers’ needs — which, after all, has been the brand’s mission from day one.