Frost & Sullivan Identifies Digital Retail Strategies as Key to Automotive Industry’s Future
By Dr. Julia Saini, Associate Partner, and Kaushik Madhavan, Vice President, Mobility Practice,
Frost & Sullivan
Until recently, some multiple OEMs and dealers did not view digitization as a “must-have” and a required asset to remain competitive. However, with COVID-19 triggering an 80%-100% drop in physical visits to showrooms and contactless transactions expected by customers, digitization has emerged as key to survival. It is empowering automotive retail and aftersales and enabling more meaningful customer engagement. In a nod to its reach and power, online retail is projected to account for about 1 million vehicles sold in 2020, increasing rapidly to over 6 million by 2025.
At the joint SIAM-Frost & Sullivan webinar on “Changing Retail Strategy & Consumer Connect – Auto Industry Road Map,” we delved into how the automotive industry has hit the reset button on retail practices with our presentation on “Digital Transformation of the Automotive Retail Industry”, while simultaneously assessing changing dynamics and emerging best practices in the Indian automotive market.
Future Stores: New Retail Formats Emerge
Image Source: Audi AG, Lexus, Mercedes Benz, Rockar, Zerolight, and Carwow Source: Frost & Sullivan Analysis
According to our research, although conventional channels like dealerships will still account for a majority of vehicle sales until 2025, complementary sales channels—digital flagship stores like Audi City Berlin, lifestyle stores like Renault Atelier in Paris or the Lexus Intersect in Tokyo, pop-up stores centered on special events, and stores-within-stores like Ford Rockar in the Fashion Retailer Next—will dramatically alter the nature of future stores and retail formats.
In this context, online retailing will emerge as a critical channel not only in terms of sales but also in terms of vehicle servicing. We anticipate revenues generated by online vehicle retail, aftersales, and services to grow almost five times from about $120 billion in 2018 to about $605 billion by 2025. From about 1 million in 2020, almost 6 million new vehicles will be sold online by 2025, accounting for over 50% of global online revenues.
Europe has seen the biggest number of OEM-initiated online sales platforms, a trend that has gained further impetus from the COVID-19 pandemic. In China, domestic platforms are driving online vehicle retail. Underscoring the exciting potential of online vehicle sales, Alibaba’s Taobao and TMall platforms recorded sales of 100,000 vehicles in a 24-hour window on Singles Day in 2016.
Omnichannel Retailing: Seamless “Bricks & Clicks” Cross-connectivity to Gain Momentum
Our analysis reveals an increasingly clear trend of physical stores and online retail channels merging to create an omnichannel bricks-and-clicks retail environment. This, we believe, is as much a response to the exigencies of COVID-19 as it is to the fact that, currently, less than 50% of car dealers globally can fulfill a complete customer journey, from purchase to delivery, online.
UK-based Rockar has been in the vanguard of the omnichannel retailing revolution. Starting with Hyundai in 2015, Rockar is now the digital storefront of three major brands: JLR, Ford, and Mitsubishi. Meanwhile, SEAT and Skoda dealers have dealt with COVID-related social distancing imperatives by offering live-guided tours and demonstrations, online. And in an important sign that OEM and dealer interests could dovetail when it comes to online retail, Group Renault recently launched Dacia’s online retail platform that allows participating dealers to receive the full margin and the full finance commission on each sale, without the customer ever having set foot in their showroom.
Digital KPIs: Digital Metrics to Aid Business Growth
Research has shown us the critical importance of adopting digital metrics in a rapidly transforming automotive ecosystem. Digital KPIs will extract maximum productivity from various digital investments and initiatives, fully realize their benefits across personnel, performance, processes, and monitor and measure both legacy and new functions. Such digital metrics will, we believe, enhance customer experience, satisfaction, and retention levels.
As our research shows, new KPIs also need to be implemented for the Management and Leadership teams if the company embraces digitization and digital transformation. It is key to measure the effectiveness of change and strategy at every level – from the dealership to the CXO level.
India’s Automotive Industry Starts to Push Forward on Online Retail
Today, we are witnessing Indian automotive industry’s struggles with the general economic slowdown and plummeting domestic sales caused by COVID-19. We anticipate sales volumes to be set back by two to four years with overall industry recovery expected only from FY22 onward.
Against this backdrop, Frost & Sullivan forecasts that the exceptional growth in digital and connectivity services will continue as it was pre-COVID. A combination of customer demand, travel restrictions, lockdowns, and fear of physical interactions will spur the digital retail segment. Electric vehicle development will remain on track due to government support, while connectivity services will receive a fillip from demand dynamics.
On the flip side, the reduction in miles driven due to stay-at-home rules will impact the demand for tire replacement and maintenance-related parts. This will indirectly constrain growth in the aftermarket. Understandably, the shared mobility segment has also been severely affected by the COVID-19 outbreak and it will take a while to limp back to recovery.
Source: Frost & Sullivan
Our research indicates that the pre-owned vehicles/car market in India is set to grow by 50% in the next three years. The used car market is expected to expand to almost 1.8 times the size of the new car market, doubling to 6 million units by FY22.
Vehicle subscription and demand-responsive transit (DRT) will boost the Indian new mobility market. Frost & Sullivan expects that by 2030, India’s new mobility market will be worth $90 billion, with revenues generated by the taxi cluster alone likely to surpass $61 billion.
One of our observations has been that OEMs in India are increasingly turning to digital showrooms due to the multiple benefits that they provide. Among these are lower operational costs and the ability to use a range of technologies like AR/VR, AI-powered systems, and voice recognition to provide customers with an interactive 360-degree experience.
Start-ups like NayaGaadi—rural India’s first multi-utility/multi-brand online marketplace for new vehicles and electric vehicles—mirror the changing automotive retail landscape. With the consumer at its core, this omnichannel platform brings together multiple stakeholders, ranging from automotive manufacturers and vehicle dealerships to banks and insurance companies. Moreover, it offers consumers a complete array of services from test drives and finance/insurance support to documentation/registration assistance and home delivery.
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