Shopping centres and technology rev up the car showroom

Most of us contemplate any dealings with a car salesman with a sense of dread. Sure, you get a car at the end of it, but first you have to endure an over-enthusiastic dealer, hell-bent on expounding the merits of heated car seats whether your budget allows it or not.

Not any more. These days, more and more car manufacturers and dealerships are electing to trade from shopping centre malls and high streets where they can offer customers something more experiential and informal - and, crucially, using less space.

The consensus is that traditional forecourt showrooms will always perform a vital role, especially for prestige and heritage brands. However, there has been a sharp increase recently in the number of car brands setting up in shopping centres. So how significant a part could this new, tech-enabled showroom play - and how big a threat is it to the traditional showroom?

The latest incarnation of the car showroom has undoubtedly reached something of a tipping point in the UK. US electric vehicle and hybrid giant Tesla has opened stores in five UK shopping centres since 2013, including three since May 2016, as well as units in prime high-street locations on London’s Oxford Street and in Edinburgh.

Meanwhile, car dealership Rockar has opened Hyundai stores in Bluewater shopping centre and Westfield Stratford City, as well as a second at Westfield Stratford for Jaguar Land Rover.

Marketing malls

According to Rockar founder and managing director Simon Dixon, who spent 20 years building the UK’s third-largest car retail group, Dixon Motors, before selling it to RBS in 2004, one of the main reasons car manufacturers choose to lease space in shopping malls is for marketing purposes.

“People want to avoid the classic car-buying interaction whereby you go in and sit down with a salesman,” says Dixon. “They want a more informal buying experience. Shopping centre dealerships offer that, as well as incredible exposure.”

People want to avoid the classic car-buying interaction - Simon Dixon, Rockar

He cites the example of Hyundai at Bluewater, which he says generated more footfall, at more than 260,000 visits since it opened, than the entire network of 158 Hyundai dealerships in the UK.

Access to footfall on such a scale changes the dynamic of the sales format. Whereas the forecourt showroom is fundamentally about transactions, the shopping centre store places the onus on raising awareness of the brand and showcasing its latest models. Moreover, a transaction may follow online rather than in store.

“We’ve seen a lot more innovation in the way cars are sold in reaction to customers’ changing demands,” says Robin Baker, a director in the automotive and roadside team at CBRE.

“Younger car buyers tend to have a mistrust of car salesmen, [having] that stereotypical view of them lurking around like vultures at the sniff of a sale. They like to interact with technology and they’re far more comfortable buying online.”

Some, like Tesla - which, mirroring the tech-driven nature of the brand, delivers an in-store experience comparable with Apple - are ahead of the curve.

Out with the old?

Rockar is also making waves by actively encouraging customers who visit its stores to complete their transactions online. As a result, the demographic make-up of its customers is very different to that of those who shop at the traditional dealership.

The dealership cites data showing that, at an average age of 37, its online customers are considerably younger than for a forecourt showroom. And, unusually for a car dealership, the store format attracts more women than men. Demonstrating the part shopping centre stores can play in attracting new customers, 94% of visitors to Rockar’s Hyundai stores and website are new to the brand.

Despite the seemingly obvious benefits of shopping centre dealerships, automotive and roadside agents insist they complement rather than undermine the role of the traditional showroom. They add that the stores are not for every manufacturer. Indeed, Kia’s UK managing director said recently that he had no plans to diverge from traditional dealerships.

Rockar: the numbers

Rockar sees itself as the antithesis of the traditional dealership. Since its launch in November 2014, the Rockar Hyundai store at Bluewater has attracted more than 260,000 visits while its Westfield Stratford City branch, which opened in December 2015, has attracted 197,000 visits.

Its customer demographic is radically different to a conventional car retailer’s:

Daniel Cook, senior associate, automotive and roadside, at Rapleys, certainly does not see the new shopping centre showroom as a threat. “We will probably see more car dealerships open in shopping centres but I don’t think the car-buying model will change fundamentally,” he says. “Forecourt showrooms will always be their primary selling space. People still like to get in the cars and press the knobs.”

Shopping centres have their limitations. Renting a unit big enough in a prime centre to include a decent chunk of a car manufacturer’s range is unaffordable even for the most successful car brands, and unfavourable for landlords who would prefer not to lease so large a space to a single tenant.

Despite costing less to build and fit out than conventional showrooms, prime shopping centre rents also constitute a substantial financial commitment.

Limitations

As Tom Rigg, an associate in the automotive team at Knight Frank, highlights, costs for Hyundai are likely to be far more in a shopping centre, and for far less space.

The mid-market brand’s typical annual rent for a traditional showroom is £100,000 to £125,000 for 8,000 sq ft to 12,000 sq ft; while, given its preference for prime London shopping centre space, a rent of £375,000 to £425,000 would not be unexpected for a much smaller space of around 3,000 sq ft to 4,000 sq ft.

“This is already a hefty rent, but when dedicated parking is added - the new Seat at Lakeside has an outdoor Experience Centre with 16 models on show - as well as an off-site support facility for servicing, the costs are only going one way,” says Rigg.

There are other limitations to shopping centre units. “There is only so much [that dealerships and manufacturers] can grow in those locations,” says Dixon. “There are a limited number of premium malls and most landlords will have no more than three car retailers in each. I think space will be exhausted in the next three to five years.”

When that happens, he predicts brands will begin to look at other areas of high footfall such as central London streets and transport hubs.

In the meantime, requirements continue for large edge-of-town showrooms, although some note that these aren’t coming in as thick and fast as they have done in the past due to the scarcity of land and ever-rising fit-out costs, making it more difficult for dealers to stack up additional sites. This type of showroom is getting larger, brighter and more bespoke, says Rigg, citing Audi Poole, which boasts its own gym and beauty salon.

David Chittenden, head of automotive at Colliers, agrees. “The trend is for larger sites with a particular emphasis on external parking and display,” he says. “We are typically seeing the likes of Audi, BMW and Jaguar Land Rover looking at sites of four acres or more.”

Spate of extensions

Indeed, requirements have grown from 15,000 sq ft to 20,000 sq ft to more than 70,000 sq ft in the past decade, according to Cook. With the need to meet environmental standards pushing costs up further still, showrooms are now so expensive that dealers need to make them last at least 15 years, which has led to a spate of extensions and refurbishments.

Moreover, requirements for new space are increasingly difficult to deliver. “It’s a very competitive space, with dealers having to outbid a variety of space users,” says Baker.

It’s a very competitive space, with dealers having to outbid a variety of space users - Robin Baker, CBRE

Margins are notoriously tight too. Last year saw the largest number of acquisitions by the bigger retailers, with 12 deals of more than £1bn and five of more than £2bn. Chittenden expects this to continue, but with average margins at less than 1.5%, retailers will have to be vigilant to stay afloat.

At a time when land prices and build costs are rising and with smaller retailers unable to compete without manufacturer support, Chittenden expects further consolidation in the market. “I think we will also continue to see rationalisation of the total number of dealerships with a more ‘hub-and-spoke’ approach and more retail-only facilities with standalone aftersales teams,” he explains.

Upward trajectory

Whether they are eyeing up shopping centre space, new sites for traditional showrooms or both, manufacturers and dealerships alike will be hoping that new-car registrations will continue on their upward trajectory.

The sector has performed consistently well since 2012, with record numbers of UK car sales documented in both 2015 and 2016.

But predictions of a 5% decline this year and question marks over the economy in the wake of the EU referendum are causing concern.

There is also only so much scope for new space, whether for traditional showrooms or the smaller shopping centre format. Added to that, driverless cars are on the horizon…

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