Carmax: Driving What's Possible

14 Pages Posted: 4 Sep 2019 Last revised: 27 Jun 2020

See all articles by Ryan Nelson

Ryan Nelson

University of Virginia - McIntire School of Commerce

Ryan T. Wright

University of Virginia - McIntire School of Commerce

Abstract

CarMax, based in Richmond, Virginia, is the largest retailer of used cars in the United States. Over the past several years leading up to 2019, CarMax has undergone a major digital transformation, integrating agile, lean, and user experience (UX) design best practices to become a customer-centric, product-driven organization.In this case, CarMax is facing new competitors (e.g., digital native players Carvana and CarsDirect), changing consumer shopping behavior, and technological advancements in electric cars, autonomous vehicles, and ride-sharing platforms. In order to maintain its dominant position in the used-car marketplace, CarMax must continue to evolve from a traditional brick-and-mortar model marked by legacy corporate practices (such as annual roadmaps and budget cycles) to a product-focused, omnichannel experience that delivers significant value to its customers.

Excerpt

UVA-S-0317

Aug. 26, 2019

CarMax: Driving What's Possible

CarMax, a Fortune 200 company, was the largest used-vehicle retailer in the United States in 2019, operating 206 stores in 102 markets nationwide. Started as “just a test” by then–electronic giant Circuit City in 1993, “CarMax revolutionized the auto industry by delivering an honest, transparent, and high-integrity car buying experience” to its customers. For 26 years, CarMax's focus had been on making “car buying more ethical, fair, and stress free by offering a no-haggle experience and an incredible selection of vehicles.” In addition, CarMax had made car selling easy by offering no-obligation appraisals good for seven days, using the slogan “At CarMax, we'll buy your car even if you don't buy ours.” Headquartered in Richmond, Virginia, as of February 2019, CarMax had “nearly 25,000 associates nationwide and for 15 consecutive years [had] been named as one of the Fortune 100 Best Companies to Work For.”

The size of the pre-owned market in 2019 was at the highest levels since the recession, with sales of over 40 million vehicles totaling over $ 150 billion. Competition for this market included local dealer franchises that sold used cars, and large traditional players such as CarMax, Penske, AutoNation, and Lithia, plus a host of online dealerships that had recently emerged, such as CarsDirect and Carvana. Despite the intense competition, CarMax's sales had remained strong with impressive financial results (see Exhibit 1). CarMax sold more than one million vehicles (748,961 retail and 447,491 wholesale) in fiscal year 2019, a 7% increase from the previous year, while posting over $ 18 billion in revenue. In addition to selling more cars than any other used car dealer, an industry source reported that CarMax had the highest gross profit margin (over $ 2,100) and the highest gross profit per unit sold (10.7%). By comparison, upstart Carvana made less than $ 1,000 per car and a gross profit of about 5% per unit sold.

In addition to competing through their different business models, the entire automotive industry was facing a great deal of disruptive change. During the annual shareholders' meeting on June 25, 2019, when Bill Nash, president and CEO of CarMax, was asked if he was concerned about the potential risks that new technologies (electric and autonomous vehicles in particular) and ride sharing posed to CarMax's business model, Nash responded:

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Keywords: used cars, automobile industry, CarMax, Carvana, agile, lean, waterfall, design thinking, user experience, UX, business models, disruption, project management, product management

Suggested Citation

Nelson, Ryan and Wright, Ryan T., Carmax: Driving What's Possible. Darden Case No. UVA-S-0317, Available at SSRN: https://ssrn.com/abstract=3445956

Ryan Nelson (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Ryan T. Wright

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

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