Businessmodel of CarMax

Customer Segments

CarMax provides services to members of the general consumer population. The Company targets two principal consumer segments: customers who are seeking to sell their cars, and customers who are seeking to purchase a used car at a reasonable price.

CarMax has developed a service that specifically targets customers that find the traditional channels for selling and purchasing used cars to be confusing, unreliable, and time-consuming. The Company has developed a process through which customers are able to complete transactions quickly and efficiently, using no-haggle prices and online services, attracting customers to whom time is at a premium. CarMax is also attractive to customers who are more tech-savvy, and appreciate the flexibility and accessibility of online services.

Currently, CarMax operates exclusively in the US, operating across 37 states, including Washington DC, with a large portion of the Company’s being generated in California, Texas and Washington DC, and Baltimore.

Value Propositions

CarMax provides value to its customers in the following ways:

• Its reputation and track record, with the Company established as a leading operator in its filed, and the largest retailer of used cars in the US, selling 619,936 used vehicles at retail in fiscal year 2016;
• Its efficient sales process, with the Company offering customers an efficient and hassle-free sales process, with fixed prices both online and at its sales lots, enabling customers to complete transactions efficiently;
• The reliability of its products, with the Company ensuring that all the vehicles it sells are quality certified, including vehicle histories, and safety recall reports, and are covered by 5-day money-back guarantees, and 30-day limited warranties;
• Its extensive network of sales locations, with the Company operating an extensive sales network spanning 37 US states, in particular serving customers across the Southeastern US; and
• Its accessibility and flexibility, with the Company offering certain tools and services online, allowing customers to quickly and efficiently initiate the sale of purchase process. ### Channels

CarMax operates a website at www.carmax.com, through which it provides information on its services, sales locations, and financing options. While the Company does not operate a digital sales portal that enables customers to complete transaction online, it does provide a channel that enables customers to initiate the sale or purchase process through its website. This includes requesting a transfer, reserving a vehicle for a viewing, and financing information.

CarMax makes its sales through its network of sales lots spread across 37 US states, with significant operations in California, Texas and Washington DC, and Baltimore. The Company employs more than 22,000 full-time and part-time sales associates, including more than 16,500 hourly and salaried associates and almost 6,000 sales associates, who worked on a commission basis.

CarMax also provides its financing services, and purchases used cars from customers through its network of sales locations. Some of the Company’s credit and financing products are provided via third party service providers. The Company is also one of the largest wholesale retailers of used vehicles in the US, through dedicated wholesale auctions.

Customer Relationships

CarMax does not provide channels through which customers can buy and sell vehicles on a self-service basis. It does, however, provide various services to customers through its website, including tools that allow customers to arrange for vehicles to be transferred between sales lots, reserve vehicles for viewing, and initiate financing services without interacting with members of the Company’s sales force.

CarMax seeks to provide an enjoyable and hassle-free sales experience to its customers. Its sales personnel are able to provide in-person advice and guidance regarding vehicles and appropriate financing options. The Company’s ability to provide personalised service, with fixed prices is a core value of the Company’s business model. All of CarMax’s sales come with vehicle histories, safety recall reports, 5-day money-back guarantees, and 30-day limited warranties.

CarMax provides a range of online support resources to its customers. This includes an online car payment calculator, vehicle information, FAQs, and guides to the Company’s sales and purchasing processes. Customers are also able to contact the Company’s sales and support personnel over the phone or online in order to receive tailored assistance.

Customers are additionally able to interact directly with CarMax through its social media accounts, including with Facebook and Twitter.

Key Activities

CarMax operates as a retailer of used vehicles. It aligns its operations into two reportable business segments: CarMax Sales Operations, which comprises all aspects of the Company’s auto merchandising and service operations; and CarMax Auto Finance, which comprises the Company’s in-house finance operations, through which the Company provides vehicle financing and credit services through its network of CarMax retail outlets.

CarMax operates around 160 used car lots in more than 70 metropolitan markets, across 37 US states, providing a hassle-free sales and purchase service, using fixed retail prices and online services. The Company’s full portfolio of products and services, includes retail merchandising, wholesale auctions, extended protection plans, reconditioning and service, and customer credit.

Key Partners

CarMax works in conjunction with a range of companies and organisations that provide support and services to the Company’s two operating segments. These partners include:

• Supplier and Vendor Partners, comprising suppliers of products and merchandise, including used vehicles, which the Company is able to sell on to its customers, as well as suppliers of services, technologies, and equipment that are utilised across the Company’s two operating segments more broadly;
• Sponsorship and Marketing Partners, comprising various sports franchises and events to which the Company provides funding in return for advertising and marketing opportunities;
• Sales and Distribution Partners, comprising various sales agents and distribution companies that support the Company’s own sales and distribution channels;
• Financing Partners, comprising various banks and credit providers that work with the Company in providing financing to the Company’s customers; and
• Strategic and Alliance Partners, comprising companies and organisations from multiple sectors, with which the Company shares resources and collaborates on joint projects. CarMax has agreed a number of partnerships in recent years. This includes sponsorship partnerships with NFL franchises the New England Patriots and the Denver Broncos, as well as a community partnership with KaBOOM! to provide grants to fund building or improving 79 play spaces across the US.

Key Resources

CarMax’s key resources are its products and supply chain, its online platform, its IT and communications infrastructure, its network of sales outlets, its trademarks and intellectual properties, its partnerships, and its personnel.

CarMax owns and or leases a number of properties that are key to its operations. This principally includes its network of production and non-production stores across the US. The Company’s production stores offer vehicle reconditioning in addition to its retail operations.

CarMax does not own any patents that are key to its activities. It does, however, own several trademarks, including CarMax.

Cost Structure

CarMax incurs costs in relation to the purchase of supplies and vehicles, the procurement of various professional services, the development of its online platform, the maintenance of its IT and communications infrastructure, the operation of its sales outlets, the implementation of advertising and marketing campaigns, the management of its partnerships, and the retention of its personnel.

In 2016 CarMax recorded total selling, general, and administrative costs in the amount of $1.35 billion. This included costs related to the payment of salaries and benefits to the Company’s workforce of employees, which totalled $737.6 million, store occupancy costs totalling $275.6 million, and advertising expenses in the amount of $140.6 million.

Revenue Streams

CarMax generates revenue through the sale of used vehicles to consumers, primarily via its network of retail outlets. The Company’s vehicles are sold at fixed prices. The Company also generates a small portion of its revenue through the provision of various credit and financing services to its customers.

In 2016 CarMax recorded total net sales and operating costs in the amount of $15.15 billion, up marginally on the $14.27 billion recorded by the Company the previous year. The majority of this revenue, around $12.44 billion, was generated through the retail sale of used vehicles. The Company generated approximately $2.19 billion through wholesale vehicle sales.