omnichannel – Virag Consulting

Reverse Omnichannel

If digital retail is so great, then why does Apple have stores? Shipping a six-ounce phone is nothing compared to delivering a car, and yet these iconic stores. This, of course, is the true meaning of “omnichannel” retail – meeting your customer wherever they choose.

Digital native retailers, in fact, are advised to add physical stores, even if they’re selling only sneakers or eyeglasses. McKinsey advocates this as a way to gain cheaper traffic – ironic, considering the popular misconception that digital retail has lower costs.

Brick and mortar car dealers have service departments which can keep them afloat in a recession. They also have an easier time selling F&I products. So, no surprise that online car dealer Driveway has lately opened a showroom, except … Driveway is the online brand of Lithia, a public dealer group with over 250 stores.

If a Driveway customer in Oregon wants a vehicle that’s in stock in Texas, it’s shipped to the Portland store and delivered to the customer.

That’s right, the online brand of the leading dealer group now has its own store – with no cars. This makes perfect sense to me. I bought my last car online, in the dealership. The salesperson ran the same configurator I would run at home, adding value with her knowledge of the product.

Omnichannel Auto Retail

Here is a brief history of how we got here, with links to contemporaneous coverage on the blog. Schematically, the omnichannel evolution looked like this:

I started writing about digital retail way back in 2015, with a two-part post on Design Concepts for Online Car Buying. I didn’t manage to land a gig building one, but I got the next best thing. My job running e-commerce for Safe-Guard put me in touch with emerging leaders like Roadster and Accelerate.

These systems allow dealers to retrofit digital retail into their existing websites, while public groups Lithia, Asbury, and CarMax developed their own. I covered the market for digital retail software from a few different angles. See here, here, and here.

Dealers invested in digital retail, but they didn’t always get the desired results. Software vendors were the first to spot the disconnect between process and technology. Roadster started writing about omnichannel in 2018. Cox’s Mike Burgiss exhorted dealers to “sell the car, not the appointment.”

The true revenue performance of a retailer’s online channel can be understated by up to 100 percent, or even more if not accounting for the influence online has on offline.

Around this time, I was writing about a Best Buy model for auto retail. McKinsey linked the two concepts in this 2021 article. For me, their most important observation is that our metrics don’t always give proper credit to the online channel.

Digital Native Car Dealers

Digital natives Vroom and Carvana missed the memo about having a physical presence. Hell, even Amazon has retail stores. Lithia and CarMax are more like “digital immigrants.” Driveway going back to its roots and opening a physical store reminds me of “reverse ETL” from Data Engineering.

Data Engineers spend a lot of effort extracting, transforming, and loading (ETL) data for use in analytics. Then, we often find it useful to take the cleaned-up data and push it back into the transactional system whence it came.

Another analogy might be how elephants evolved from seagoing mammals and back to land again, or how computing power was centralized in the mainframe era, and now recentralized in cloud services … but “reverse omnichannel” makes a better title.

Caution: Learning Curve Ahead

In last week’s episode, I warned that dealer groups proceeding aggressively into Digital Retail may suffer for it. This has gotten some pushback. Regular readers know that I have been a staunch proponent of Online F&I for many years. Indeed, my work at PEN and F&I Express has done much to advance the cause.

I gave this warning in the spirit of full disclosure, and to manage expectations. Now I am in the awkward position of having to press my charge against a technology which I actually support. If that sounds complicated, consider this:

Luddites – Veteran F&I Director Justin Gasman, quoted recently in Wards, says that F&I will never be totally digital. “People who say that are from tech companies,” he quipped. I call this the Luddite position but, in fairness, I am one of the tech guys he’s referring to.

Boosters – Cox Automotive regularly produces surveys with findings like: 63% of customers would be “more likely” to buy F&I products if they could learn about them online. Coming from an opinion poll, this is mere boosterism.

Realists – My position is somewhere between these extremes, hence the warning. I was addressing the Big Six dealer groups, who are regularly ranked on F&I performance. I do not want to be the consultant telling Mike Jackson to go all in, and then have to explain why he has slipped out of first place.

If you go to a dealer and say, “Hey, look, we’ve got this great solution, but the profitability is only half of what you had before,” that’s really going to slow down adoption.

Automotive News interviewed some realists last year, and they all share my cautious optimism. The quote above is from Safe-Guard’s David Pryor. The consensus goes something like this:

Present F&I products online, early in the process, and include pricing.
Use an API to select the right coverage, and AI to make recommendations.
Experiment with (A/B test) various digital media.
Integrate DR with your instore process, training, and metrics.

Roadster’s COVID-19 Dealer Impact Study found that dealers who already had Digital Retail saw improved gross, while the COVID adopters did not. “Not a magic bullet,” it says, instead emphasizing the improved efficiency. Other realists, as here, had the same experience.

Digital Retail is like any other new process. There is risk, reward, and a learning curve. That’s not too complicated.

Top Digital Retail Systems

I have been writing about Digital Retail for several years now. Keeping tabs on the players was part of my job at Safe-Guard, and people still call for my notes. Since I am moving on to a new venture, I figured I would simply publish the list.

First, some notes about the category. I split out online car dealers, TPC platforms, and finance-first sites. Obviously, CarMax is omnichannel, but they’re not a software vendor. My definition of a digital storefront is given here, and I differentiate then from TPC sites here.

Anybody with a foothold in the dealer’s website is using it to pivot into digital retail.

The “pivoter” category from this last article is especially relevant, as more and more vendors transition into the space and flesh out their offerings. Finance-first sites are those, like Rodo and AutoGravity, where customers go for finance and then turn over to a dealer.

List of Automotive Digital Retail Vendors

Roadster – Roadster’s Express Storefront was the first to use the “plug-in” delivery strategy. They are in some very innovative dealers, like Paragon and Galpin.
TagRail – Similar to Roadster. My pal Kiran using analytics as a differentiator. Now owned by digital marketing firm Fox. I wrote about DR and Marketing tie-ups in my survey, DR and Dealer Websites.
MotoInsight – I did an OEM project with Moto, and visited their offices in Toronto. I like the team, and what I especially like is the idea that dealers will use the same system instore that the customer uses online. I profiled them here.
Gubagoo – Gubagoo started as a chat engine, and has now developed a DR solution called Clicklane for Asbury Automotive. Lithia also has a branded DR offering, called Driveway.
Modal – Formerly Drive, from serial entrepreneur Aaron Krane. I cited Krane and Roadster CEO Andy Moss, here, as examples of “disrupters” from outside the industry. Modal has recently inked a deal with Honda, and raised $15 million in funding.
CarNow – Another entrant from the chat space, I was surprised to discover so many dealers using CarNow’s BuyNow plug-in. It seems to be especially popular on Dealer.com sites.
AutoFi – AutoFi expanded successfully from a finance plug-in to full DR with Express Checkout, used by a number of dealers including Ricart Ford.
Darwin – Darwin is unique in having pivoted to DR from an instore system. They’re at Herb Chambers, branded as Smart Buy, and also my local Atlanta dealer, Jim Ellis.
Digital Motors – This is a very new entrant (2020) but a strong team including Andy Hinrichs, formerly of AutoGravity.
Dealer eProcess – Getting DR from your website provider seems like a good idea, buy my survey found few instances of it. Others in this category are Dealer Fire and Dealer Inspire.
Make My Deal – MMD is gone now, folded into Accelerate and attached to DDC. So, it’s in the dealer website category, not a storefront.

Sorry if I missed anyone. New entrants pop up every day. I would say that the space is becoming crowded, but there are still thousands of unserved dealers. Follow my Twitter feed, @ViragConsulting and the #DigitalRetail tag, for regular updates.