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1 The Advent of Digital Retailing and the Impact on Global Car Dealership Structures By 2016, Automakers are Expected to Open more than 100 Digital Showroom/Lifestyle Stores Globally December

2 Contents Section Slide Number Executive Summary 7 Research Scope, Objectives, Background, and Methodology 18 Definitions and Segmentations 25 Definitions of Selected Terms Used in the Study 26 Abbreviations and Acronyms Used 27 Definition of Digital in Retailing 28 Automotive Dealership Segmentation 29 Digital Retailing in the Automotive Industry Europe and North America 30 Overview of Channels of Retailing in the Automotive Industry 31 Degree of Digitization in Car Retailing 32 Digitization US vs. EU Automotive Industry 33 Global New Car Online Retail Forecast 34 Global New Car Online Retail Scenario Analysis 35 Digital Retailing Focus of Key OEMs 36 Global Outlook of In-store Digitization in Car Showrooms 42 Key Future Characteristics of Dealerships by Geographic Region 43 Geographic Segmentation of Dealerships: A Future Scenario 44 3

3 Contents (continued) Section Slide Number Structure of a Future Channel Network in a Mega City 45 Data Mining to Drive Sales and Support of OEMs 46 Conventional versus Digital Setup 47 Impact of Digitization on Car Retailing KPI Analysis 48 Future Digital Marketing Linked to Digital Retailing 49 From Digital Marketing to Digital Retailing 50 Impact of Digitization on Car Retailing KPIs 51 KPI Significance by Vehicle Store Type 52 KPIs Audi City London Case Study 53 Digital Retailing (Europe) 54 Current Digital Car Retailing Trends in Europe 55 European Dealer Regulatory Environment Block Exemption Strategy 56 Impact of Block Exemption Strategy 57 Change in Sales Per Main Dealer in the UK 58 Trend Analysis of Off-store Digital Sales Generation 59 Leading Digital Vendors and Integrators for In-Store Digitization 60 Example of Digital Showroom 61 4

4 Contents (continued) Section Slide Number Example of Lifestyle Stores 62 Digitization in Car Showrooms Europe 63 Automotive Digital Retail Stores in the UK 64 Selected Cities as Targets for Digital Retailing Example of London 65 Case Study: Audi City London 66 Case Study: Mercedes-Benz 68 Case Study: BMW 69 Case Study: BMW s Changing Composition of Showrooms 70 Case Study: Fiat Mirafiori Outlet Italy 71 Case Study: Dacia 72 Case Study: IBM Intelligent Commerce Experience (ICE) 73 Digital Retailing (North America) 74 Current Digital Car Retailing Trends in North America 75 US Sales per Dealership for Key OEMs 76 US Dealer Franchise Laws: Key Challenges Posed to OEMs 77 US Franchise Laws and Impact on Digitization 78 Franchise Law Case Study: Tesla Motors 79 5

5 Contents (continued) Section Slide Number OEM and Dealer Digital Investment and Fulfillment Structure 80 Trend Analysis of Off-store Digital Sales Generation 81 Off-store Digital Lead Generation Channels Comparative Analysis 82 Off-store Digital Lead Generation Channels Discussion 83 Internet Sales Growth of Key US Dealerships 84 US Mega Regions and Impact on Digital Showroom Development 85 New York City the Right Fit for 1st Wave of Digital Showrooms 86 Digital Showroom Structure Scenario Analysis 87 In-store Digitization Key Value Chain Participants 88 In-store Digitization Case Study: Tesla Motors 89 In-store Digitization Case Study: Apple Genius Model in Automotive 90 Case Study: Google s Online Automotive Retailing 91 Key OEM and Dealer Group Digitization Investments 92 Key Findings and Future Outlook Europe and North America 93 Conclusions and Future Outlook 94 Appendix 96 6

6 Executive Summary Key Findings Original equipment manufacturers (OEMs) are expected to open more than digital showrooms/lifestyle stores globally by 2016, with car retailing mutating from retail experience into brand experience The more than digital showrooms and lifestyle stores being opened by OEMs globally will be strategically located in city centers. Digital showrooms feature digital tools specifically aimed at enhancing both the retail and brand experience; they have limited on-floor physical inventory. Lifestyle stores focus on offering a strong brand experience through lifestyle-related concepts of art, fashion, music, food, and design. Around 20 to % of the conventional dealership space will give way to digital technology like gamification, augmented reality, and 3D technology. European OEMs are leading the way in terms of digitization in retailing a major element considered for all of their future retailing programs. North American OEMs are still evaluating the retailing scenario and will mainly improve in-store digitization over the coming years. Audi, JLR, and Nissan have already launched diverse digital showroom concepts, as well as digitally revamping existing showrooms for retail and after-sales purposes. In the United States, OEMs such as Lexus and GM-Cadillac approach digitization mainly in existing showrooms, encouraging the existing sales force to apply digital means. The expiration of the EU s block exemption regulations is seen as an opportunity to restructure dealership networks, to eliminate underperforming dealers, and to cease multi-brand retailing. Restructuring will include digitization of showrooms in strategic locations to capitalize on the halo effect of digital showrooms. By end of this decade, % of sales leads will originate from digital means rather than through traditional channels such as walk-ins, cold calls, or leaflets. Source: Frost & Sullivan 8

7 Executive Summary Key Findings (continued) Automotive dealers in North America digitize their marketing strategies internally, while OEMs fail to establish full-fledged digital showroom concepts due to franchise laws Unlike Europe, North American OEMs and dealers are pursuing digitization models through existing stores. Significant investments are being made to update store technology, train staff, and digitally integrate various aspects of the car-retailing process. In the franchise law environment, digitization of car retailing will entail a collaborative approach between OEMs and dealer groups in North America with limited opportunities for OEM-owned flagship stores. Investments of $ million to $ billion are expected from several OEMs and selected dealer groups to improve in-store digitization in Europe and North America by Average digital marketing spending is expected to reach % of the marketing and advertising budgets of dealerships and automotive OEMs in Europe. Soft digitization technologies such as digital tools, signage, and kiosks have seen strong growth alongside traditional marketing tools in the recent past. Future stores will exemplify advanced features in retailing and after-sales services such as high-level car configurators, 3-D displays, augmented reality, virtual test drives, holographic simulations, remote car diagnostics,online service/repair booking, and assisted repair. The advent of digitization has led to the development of new and additional performance indicators, the introduction of innovative sales strategies, and both cost reductions and additions in up-front investments. New key performance indicators (KPIs), such as brand awareness, digital engagement of customers, customer age, lead response time, and vehicle configurability satisfaction will be of increasing importance. Source: Frost & Sullivan 9

8 Executive Summary Automotive Dealership Segmentation Conventional dealerships exclusively showcasing physical inventory are expected to be replaced by and/or transformed into digital showrooms by end of this decade; lifestyle stores enhance the brand experience of customers. Automotive Digital Retailing: Types of Automotive Dealerships, Europe and North America, 2013 Conventional Dealership Digital Showroom Lifestyle Store Pop-up Store Definition: A car-retailing outlet that follows the traditional model of showcasing physical inventory, with the majority of its sales activity happening offline. Ownership Structure: US Mostly owned and operated by an independent business or dealer chain under the franchise model Europe Both OEM and independent business owned; typically operated by an independent business or dealer group. E.g., AutoNation, Inchcape Definition: Digital showrooms feature digital tools specifically aimed at enhancing both the retail and brand experience. They have limited on-floor physical inventory and may or may not be involved in actual sales transactions. Ownership Structure: US No existing store Europe Owned by OEM and operated by an independent business or dealer group. E.g., Audi City London, Audi City Beijing Definition: Lifestyle stores offer a strong automotive brand experience through lifestyle-related concepts of art, fashion, music, design, food, and technology. The store is not centered around the actual sales transaction of a car. Ownership Structure: US Upcoming (to be owned by OEMs) Europe Exclusively owned by OEMs. E.g., Lexus Tokyo, L Atelier Renault Paris Definition: Pop-up stores are temporary stores with 3D visuals and QR codes at hightraffic locations that are used, for example, to draw the public s attention to a new car model. Ownership Structure: US Upcoming (to be owned by OEMs) Europe Exclusively owned by OEMs. E.g., Mini Westfield London (2012) Source: Frost & Sullivan 10

9 Executive Summary Automotive Digital Retail Formats New purchasing behaviors of an increasingly technology-savvy customer base, urbanization, and social media trends have led to the creation of omni-channel retail solutions within the automotive industry. Automotive Digital Retailing: Automotive Digital Retail Formats, Europe and North America, 2013 Digital Showroom E.g. Audi City, London OEM/Dealer s Online Store Independent Online Store Pop-Up Store E.g. Westfield Mini London Lifestyle Store E.g. L Atelier Renault, Paris OEM/Dealer websites facilitate hrs online sales with car configurators, visualization tools, and online chats. Websites offering customers a huge database for multiple car brands along with online financing and insurance. E.g. Tesla, Dacia, Ford, Fiat E.g. ebay Motors Images and logos are only for illustration Image Source: Audi UK; Mini UK; Frost & Sullivan published report Source: Frost & Sullivan 11